Sustainable investors confront political uncertainty

Hello from New York, where we begin with troubling news for sustainability-focused investors.

For the first time on record, global sustainable funds experienced net quarterly outflows in the last three months of 2023, according to a report from Morningstar that published yesterday. Investors withdrew $2.5bn overall, Morningstar said. But unsurprisingly, Europe was the bright spot. European funds attracted $3.3bn of net new cash into sustainability funds in the fourth quarter.

For the year, European sustainable funds garnered $76bn while US funds bled $13bn, including $5bn in the fourth quarter.

We have a guest appearance in today’s newsletter: our colleague Josephine Cumbo has an interview with the chief investment officer of one of Australia’s biggest pension funds.

And in other news, I have a report from the big National Retail Federation conference last week, including an interview with the chief executive of NCR Voyix, a technology services provider for stores. He had an unexpected perspective on the sustainable investing landscape.

As always, thank you for reading. — Patrick Temple-West

Sustainable investing

Australian pension fund broadens investments amid uncertainty

One of Australia’s largest pension funds is broadening its sustainable assets to include smaller-scale projects such as battery storage as political uncertainty threatens to dent investor confidence in the energy transition.

Aware Super, a A$160bn Sydney-based fund, last year opened an office in London and is now looking to deploy around £5.25bn (A$10bn) in the UK and Europe.

As part of its offshore expansion, Aware Super is currently eyeing new opportunities in the renewable and energy transition areas.   

“We have made some investments over the past few years [in Australia] in larger-scale transition assets, but we are also thinking more recently about how we invest in a slightly different way,” Damian Graham, chief investment officer of Aware Super, told the Financial Times in an interview.

“It’s not just large-scale wind and solar [assets] but different ways of supporting the transition, such as battery energy storage. These are the sorts of things we have been doing in Australia more recently.”

Aware Super is one of Australia’s largest investors in the sustainable investing space. The fund has more than A$2bn of investments in utility-scale wind and solar generation assets and other “climate solutions” areas.

In October last year, the fund announced a A$300mn partnership with energy storage and renewables developer Birdwood Energy.

Through its infrastructure and private equity teams the fund has also invested in renewables and low-carbon technologies in the US.

The fund, which has around 1mn members, is looking to build its energy transition exposure in the UK and Europe as political uncertainty steps up around the world adding challenges to the investment environment.

This year 64 countries will go to the polls, including the US, South Africa and Pakistan. A general election in the UK is also expected. In some countries, climate policies are already being set out as election battlegrounds.

Last year, UK Prime Minister Rishi Sunak indicated he was ready to soften the government’s green policies, saying he did not want to “hassle” voters and that hitting the UK’s net zero carbon emissions target had to be done in a “proportionate” way.

Donald Trump is planning to gut US President Joe Biden’s landmark climate law, increase investment in fossil fuels and roll back regulations aimed at accelerating the transition to electric vehicles if he is elected this year. 

“I do think the energy transition space is one which very much benefits from certainty because they are long-dated investments,” said Graham.

“I think as an investor clearly we always benefit from more certainty and [political stability].”

Graham added that with the amount of money that must be invested to support the transition over the next few decades it is very unlikely that every investment “will do exactly what we expect it to do”.  

“There is always some uncertainty,” he said. “But the more certainty we can get from the political and regulatory [stance] the better, to invest with more confidence.”

“We are forming views around what we think are the most likely areas of strong returns, to support that transition.” (Josephine Cumbo)

Sustainability

As asset managers tone down ESG, retailers push ahead with sustainability

As giant asset managers BlackRock, Vanguard and State Street come under fire in the US for sustainable investing, companies are feeling less pressure from their shareholder base on this topic.

However, big corporate brands have prioritised environmental, social and governance (ESG) issues — both to comply with regulations and boost their reputations with customers and employees. 

This dichotomy cut through the hustle and bustle at the National Retail Federation’s conference in New York last weekend. At this event, I interviewed David Wilkinson, chief executive of NCR Voyix, a big payments and software provider that used to be one of the biggest US ATM makers.

Wilkinson said the company’s investors have toned down the ESG talk recently. 

“There was a time when investors were hyper-focused on it,” he told me. Now, they haven’t dropped the topic completely, he said, but “it is not a massive topic of conversation” when meeting with shareholders. BlackRock, Vanguard and State Street are NCR’s three biggest shareholders.

“The noise on that [ESG] has come way down for us when we have conversations with investors.”

Wilkinson contrasted that with what NCR is working on with its big customers: grocery stores, petrol stations and restaurants.

“They are all very concerned about sustainability,” he said. “They all have pretty public statements on sustainability, their overall stance on ESG, how they do diversity and inclusion across their companies.” 

The acceleration of artificial intelligence and overall computing needs are affecting NCR’s big customers, he said. And this computing power increases their carbon footprints. So things that NCR can do to shrink the hardware footprint in stores helps companies manage their carbon footprints, he said.

Wilkinson spoke on a panel at the conference with Clodagh Moriarty, chief retail and technology officer at Sainsbury’s. NCR provides hardware and software services to keep the grocer’s technology up and running.

In the old days, if something broke in a store, someone would drive out to make repairs, he said. But according to Wilkinson, now up to 70 per cent of issues can be fixed remotely. That means fewer trucks and a smaller carbon footprint for retailers.

“That overall reduces the carbon footprint that we have and in supporting Sainsbury’s and if we were not doing that work on Sainsbury’s behalf they would have to do that themselves,” he said. (Patrick Temple-West)

Smart read

I recommend Kenza Bryan’s article with our colleague Joe Daniels, reporting from Georgetown, Guyana, about the country’s carbon credits. Guyana is facing Venezuelan threats to annex more than half of its territory, including oil reserves in its exclusive economic zone.