17 April 2018

Can ESG investing answer 'the inequality issue'?

(Lucy Dean)

Capitalism and sustainability aren’t necessarily bosom buddies, but there are rays of hope within environmental, social and governance-aligned (ESG) investing, a specialist fund manager has said.

To WHEB Asset Management’s Ted Franks, the uneasy relationship between capitalism and sustainability is a “deep question”. Nevertheless, it’s a question that needs to be solved.

“Capitalism, undoubtedly has this concentration of wealth effect, or has had, historically,” he told Nest Egg.

“It's not impossible that different models of capitalism will solve that in the future… because things will be much more visible, and we're generally moving towards a more transparent society.”

However, he acknowledged that, as it stands, it is a big and complicated issue.

While capitalism has the power to improve the general standard of living and promote innovations and technologies, it is also one of the contributors to inequalities.

“In my business, our strategy is more about how can capitalism help solve some of these really pressing issues and bring up the basic level,” Mr Franks said.

“The fact that on top of it you've got this great inequality issue troubles me, and troubles anyone who's thinking about it, including the most avaricious capitalists.”

He explained that even as a child, the inequality he would witness while travelling stuck with him.

“Development-wise, you see some societies are over-wealthy and some are struggling, and then generationally you see well, if this generation's going to absorb all the natural resources, it's going to leave the next generations impoverished.

“How does that work, that sense of societal equity?”

While this question of ever-increasing inequality demands a solution, Mr Franks admitted the limits of Sustainability Funds such as his.

He said the question of how investors and fund managers are navigating the relationship between ESG, capitalism and inequality is one that’s coming up increasingly.

“The answer is, I would like to, but that's not the essence of the Fund here.” He continued: “But the thing is I can offer good rays of hope though, as well, which is that they're all inter-wound.

“Sustainability, fundamentally, is about the allocation of resources, and if we can just work now to get through and make the lifestyles that we all aspire to now at least not going to create catastrophic change and disasters, then over time, some of the solutions which stop that from happening will also address inequality, I'm sure.

“Technology will be a big part of it, because people will be able to see what's going on much more clearly.”

Mr Franks manages the Pengana WHEB Sustainable Impact Fund which is open to Australian investors and focuses on a diversified global portfolio of companies which address the challenges of sustainability.

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