27 Nov 2020
This week Will Goodhart, erstwhile journalist and now Chief Executive of the UK’s CFA, talks us through his fascinating responsible investment journey. This includes the CFA’s work to help investors understand ESG to the urgent need to view climate change from an investment perspective. He also discusses the exciting work he’s doing as part of the Impact Investing Institute.
Amanda: Hello, and welcome to the Aberdeen Standard Investments Responsible Investing podcast. I'm Amanda Young, your host for today. Now we aim to cover a range of responsible investment topics from guests, both internally in the organisation and across the financial services industry.
Today, I'm delighted to be joined by Will Goodhart who since 2006, has been the Chief Executive of the CFA Society in the UK. He also currently sits on the board of the Impact Investing Institute. Welcome Will.
Will: Thank you very much – delighted to be here
Amanda Now prior to leading the CFA in the UK, Will was a Managing Editor at Euromoney Institutional Investor looking after a broad range of financial publications including specialist titles for development bank meetings and the World Economic Forum's annual meetings.
Recently, Will completed a master's degree in corporate governance and business ethics at Birkbeck College, but Will’s interest in responsible and impact investing isn’t new. In fact, fate perhaps was telling him something many years ago. Responsible investment first started gaining traction around 2000, after the birth of Will's three children. Extraordinarily, he had already named them Eve, Sarah, and George in that order, and now has a personal reason to smile every time the world utters E,S and G.
Now interests, Will likes walking, and walked some of Hadrian's Wall this summer. But after work and his family, there isn’t all that much time for expeditions.
So Will perhaps can I begin with your own personal interest in responsible investment. Can you talk us through your own journey, from where you first started to become aware of responsible investment issues, to today where responsible investment and sustainability issues are now common place.
Will: Be very happy to and thank you so much for your very kind introduction. As you say, it was a surprise to me in some ways that our children carry the acronym E-S and G and that it actually had meaning beyond just their own names. It was a great pleasure this summer to walk some of Hadrian's Wall with the E part of that trio.
My journey I suppose started much later than many of those who have probably appeared on this programme, and certainly much later than many of those who have been working in this space for years and years. I was a financial journalist for a long time and editor. In that role, I covered issues around ethical investing, but only really tangentially to focusing on more mainstream activity. I had an awareness of the development of responsible investment, but probably not so much a direct interest in it.
That started to grow towards the end of my time in journalism, as the topic became more important to the people and the institutions that we were covering, whether that was the World Economic Forum or development banks or others. Then when I moved to CFA UK as Chief Executive, as you say now, rather a long time ago. Initially, we were dealing with the financial crisis and the outcomes of the financial crisis. That led more into the governance part of it, but that quite quickly morphed into a broader consideration of environmental and social issues, as well as the governance piece. From that time, I suppose, from around 2009/10, I've been relatively involved in ESG issues as well as actually in impact.
Amanda: Clearly responsible investing has evolved over your working life, which is really interesting. As CEO of the CFA Society in the UK, for me it's been really fantastic to see your organisation recognise the importance of ESG factors as part of investment thinking. As the global association of investment professionals, the CFA has long been the promoter of the highest standards of the financial analysis within the industry. I understand that the CFA Society in the UK now offers a certificate in ESG investing, which I think is actually fantastic. It's been running for a year, I believe? Perhaps you could tell us a little bit about how this evolved and what the drivers were behind the development of this.
Will: Absolutely as you say, we launched the certificate last September. It's done really well. We're at close to 3,000 registrations, which is quite a long way ahead of where we hoped to be. We're very close, I think, to globalising the certificate through our work with CFA Institute of which we're the local member society. Our role at CFA UK as a professional body is really to make sure that the investment profession acts in society's best interests. We do that obviously by educating people, by promoting the highest standards of ethical and professional behaviour, and educating people around the investment sector.
Our sense has been for a couple of years at least, and maybe a little bit longer, that providing people with foundational skills and knowledge around the integration of environmental and social and governance factors into investment decision-making, and how those are integrated into the investment decision-making process, is really important. That sense was reinforced by our discussions with investment firms, and I think has been proved by the response we've had from individuals and from firms in taking up and supporting the certificate.
Amanda: Well, certainly I've recommended it to a number of people who've been keen to do a bit more training in this area. Your feedback on this initially, what's that been like?
Will: It's been great. We found that one of the things that people really valued was being provided with some assurance on the breadth of the knowledge and the skills that you need. Because one of the challenges in this area is that while there are many people who are profoundly expert in it, for many people this is new. That question of how much do I need to know and where can I go to get it, is one that I think for people left alone would be difficult to answer.
What we were able to do is actually bring investment professionals together and say, "What do you think somebody, a reasonably well-informed, reasonably skillful investment professional should know and should know how to do in order to be able to perform properly on behalf of clients and to represent the profession well?"
We've encapsulated that within the official materials and then we test it through the exam. The materials have been very well received and I think that the experience that people have in being examined, particularly now that we also have introduced remote proctoring so that people can take the exam at home, has been terrific.
Amanda: Clearly gaining a basic understanding of the ESG factor is a good starting point, but there are some pretty complex issues out there, and as you said there are some people who are very deeply immersed in some of these. Can we perhaps touch on the topic of climate change, which has become the largest and most material of all ESG factors over the past few years, driven by both regulation and the increased recognition of the risks that the worlds are facing at the moment.
I believe you're working on a new certificate on climate investment. Again, are you able to tell us a little bit about this and what's driving the development of this?
Will: We added quite a lot on climate to the certificate in ESG investing in it's second edition of the materials. We had quite a bit on there originally, but this is a topic that's becoming more and more important as time progresses and obviously there is an increased urgency around our need to address climate change as time progresses. We felt that it would be appropriate for us to launch an additional certificate on climate and investment, to allow people to understand both the policy and regulatory frameworks around climate and how it relates to investment, but also actually the science of climate and how that affects investment decision making.
The very simple shortcut that I have for describing the difference perhaps between the certificate in ESG investing and the certificate in climate and investment, which is not yet launched, and won't until next year, is that the ESG certificate trains people to do bottom-up analysis. The trouble with climate is that it's really top-down. It's that sense of, this is climate as a system, and so how do we take that understanding of climate as a system and integrate that systemic understanding into the rest of our investment decision-making process, and how does that work across asset classes, and how does that work within asset classes?
I think that kind of approach in the same way that ESG has now in some studies been proven to improve investment returns, and in almost all studies has certainly been proven not to damage investment returns, I strongly suspect that we'll go the same way with respect to climate, and it's important for us to support investment professionals as they seek the skills and knowledge that will allow their clients to benefit from that.
Amanda: I think that's all really interesting, but I'm going to actually change the topic now to impact investing. I believe you were an early advocate of impact investing and the concept of using capital to achieve environmental and social outcomes, and this journey started a decade or so ago. I'm quite keen to hear how you've been involved in the impact investing space, and then how this has led to your being on the board of the newly formed Impact Investing Institute.
Will: I should start by saying you're giving me too much credit because I was perhaps not an early advocate, but I was lucky enough to come into contact with the early advocates of impact investing, and I guess that was because of the work that we were doing on financial analysis. There was a really interesting group of people who were looking at non-financial analysis and reached out to us and encouraged us to become involved in those conversations about how non-financial analysis could be done well. I was involved in the development of an association of impact analysts, and then served on the board of that organisation for a couple of years and that has now gone on to become part of Social Value International, that organisation.
As a consequence of that work and my good fortune in being aware of impact relatively early, when Dame Elizabeth Corley was putting a group together to help her with her report on growing a culture of social impact investing in the UK, she got in touch with me and asked me to be involved. I then reached out to a number of people across the investment profession to help me in that work and we were really grateful, Amanda, for your involvement in that, and very much enjoyed the expertise and the knowledge that you brought to the groups that we ran and that helped us develop a really useful report that then directly led to the foundation of the new Impact investing Institute, which I think has done really great work in its first year.
Amanda: It's a really exciting institute because it brings together both the purest impact investors in the mainstream. It's celebrating its first year in existence in November. What do you think the biggest achievements have been and how do you see this group influencing the mainstream industry?
Will: It's a really good question and it's a question we've been asking ourselves on the board. Our mission really is to bring capital to impact investing in scale. I think some of the things, aside from the simple achievement of having successfully established a really great staffed office, led fantastically by Sarah Gordon, but with a really superb staff alongside her, and also having established very good relationships with our key stakeholders, I think have been in a number of areas.
We've developed new reporting standards that make it easier for investors to compare investments across different areas, and I'm particularly thinking of the work that we've done on common ESG reporting standards around social housing. I think we've done important work to assure the trustees of pension schemes that investing in impact is something that is perfectly reasonable. We've developed and published a good paper on the fiduciary duty and it's relationship with impact investing and how those two things are consistent. We've started to do some really exciting work both around place-based impact investing, and also have contributed significantly to recommendations to government on the issuance of green plus gilts.
The work that I've been more directly involved in myself has been around developing a learning framework on impact investing, because even more than ESG, where people now are beginning to have a common sense of what is ESG, how is ESG implemented. On impact we're at a much earlier stage than that and there is still confusion about what is impact investing, what are its key characteristics, what does this market look like, how does it work, how do you do the due diligence around an impact investment?
We have developed a learning framework and at the moment we're very close to launching a resource bank that has the answers to those questions within it. I'm very pleased about that and looking forward to building on that work in the years ahead.
Amanda: That's really interesting and we should definitely watch out for the developments of the Institute over the next year or so. I understand you're part of a book club so your claim to not have any interest is not entirely true. I understand you look at six books in depth each year, which is quite an achievement. Certainly in my busy life, I wouldn't be able to do that. My next question should be an easy one for you. Will, is there a book you've read recently that relates to sustainability issues that you would like to recommend to our listeners?
Will: There is. We cover in our book club a whole range of different types of literature and so we don't always have books on sustainability, though we have read a number of different books that I'd very happily recommend to the readers, but the one that I would pick out is actually a book that I've read very recently. It was the book that Mario Vargas Llosa published a year after he won the Nobel Prize in 2010. It's called The Dream of the Celt.
It tells the story of Roger Casement, who was British and worked for the Foreign Office for many years, and went from the very traditional views about the benefits of colonialism to being strongly opposed to colonialism, and in fact became an Irish nationalist, and eventually was hanged, having been found guilty of treason by the British government during the First World War after the occasion of the Easter Rising.
It doesn't touch on sustainability throughout the work, but a lot of Casement’s work related to the treatment of indigenous people in both the Congo and in the Amazon. He wrote scathing reports both about the operation of the official Belgian company that worked in the Congo, and later about a company called the Peruvian Amazon company. The report on the company was commissioned by the British government because it had been embarrassed by news reports of atrocities being committed by the company's staff in the Peruvian Amazon, where they were overseeing the collection of rubber from native populations.
Casement went to Peru and spent a significant amount of time there and witnessed the horrors that were going on, submitted his report to the government, it was then published. The entire board of directors of the London listed company then resigned and the Peruvian Amazon company was wound up about a year later, with a report from the group that had been asked to look into this, noting that the assets that had been described in the prospectus were not there. The value of the assets that had been described that were there were significantly lower than those that were initially announced.
I just thought it was a really intriguing reminder that ESG factors have always had an influence on company values, and that investors have always needed to be conscious of the risk that environmental, social and governance concerns being addressed properly by the managements in which they're invested.
Amanda: True sustainability from many years ago, I think that's fascinating. Thank you so much for that recommendation, Will. We're now at the end of our podcast sadly. Over the past few years, a lot's been achieved in sustainable finance. Do you think we've reached our final destination or do you think we still have some way to go?
Will: I rather hope we haven't reached our final destination. We're not where we need to be. There's an enormous amount of work to be done both in terms of addressing the immediate crisis in climate, but also to achieve the sustainability objectives that most people hold. I think we are past the tipping point. I think that there is an acknowledgement broadly, both among policy makers, regulators, and actual investors, our end clients, that this is work that needs to be done and these issues can no longer be ignored.
We have an idea about where we need to get to and we are starting to move towards that, but what we'll find is that some of the directions we take turn out to be wrong, some turn out to be much more powerful and more effective than others. We need to work in many different directions at once and quickly in order to achieve the objectives that we all seek. Yes, I think we're on our way but we have a long way to go. The good news is that I think it's going to be a fascinating journey and I look forward to being part of it.
Amanda: Will, thank you so much for joining us today. It's been an absolute pleasure to have you with us and also bringing a financial industry perspective to the trends we're seeing today. I urge everyone to watch out for the climate cool sets coming in 2021. Will, thank you.
Will: Thank you very much indeed. Thank you for the really important and significant work that you and your colleagues are doing in this space.
Amanda: Sadly, that ends our discussion today. Again, thank you to all those who take your time to listen to our series. Do download our previous podcasts which you can find on our website or wherever you normally get your podcasts. Watch out for our next episode and tune-in.