Looking through the history of the funds management industry, the early adopters of ESG principles – from climate change through to social issues and corporate governance – are often affiliated with churches. They represent people “of faith”. One of the oldest in this regard is Uniting Financial Services.
The investment arm of the Uniting Church, which runs a portfolio of about $1.6 billion, got going in the early 1980s, when its chief executive, Warren Bird, had just joined Treasury in Canberra. The 1980s were big for this industry, with massive deregulation under the Hawke-Keating government, including the floating of the dollar, the Campbell Inquiry into the financial system and subsequent reforms. And, in 1986, there was the birth of modern super, with the “Accord” which resulted in the launch of “Award Super”, the precursor to the Superannuation Guarantee.
Bird left Treasury in 1986, after much of the de-regulation had transpired, and returned to the private sector back in Sydney. He joined Lloyds Bank and then became the economist for Merrill Lynch, where he started to develop his reputation as a fixed income specialist manager. He then went to the former SBC (now UBS), working with the recently retired Stuart Piper, and then, in 1996 on to Colonial First State, under Chris Cuffe.
“I was looking for something new,” he says. “And CFS was looking for someone who could take hold of its fixed income book and do something with it. When I first met Chris Cuffe it was a genuine meeting of the minds for me. He was the best boss I ever had… The bond fund was miniscule at the time, just $28 million, but they had $1 billion in cash. Even though SBC was the premier fixed income manager in the country at the time, I saw this as a real opportunity.”
He says: “A lot of people thought I was mad, but Steven Carew (a JANA Advisors consultant) told me that I would really like working with the CFS people. They are good people… It was there that I started to think about ethical investing and adopting a long-term approach, evaluating yield by various criteria and thinking about a 10-year duration. In the early days at Colonial I used to say: ‘I believe in God but I am not him’. There has to be a lot of humility in investing.”
He kicked his first big goal in the fixed income world in 1997. “I saw a wonderful opportunity,” he says. “The bond market sold off and 10-year bonds got up to 8.5 per cent. I thought that inflation was under control and this was offering a real yield of about 6 per cent. So, we went long duration and were rewarded very quickly. Chris (Cuffe), said years later that because our bond portfolio did so well that Peter Smedley (then chief executive of the whole group) felt comfortable that Chris and the team knew what we were doing.”
After leaving CFS is 2012 Bird looked around for some non-executive roles, including working part time for a “credit wrapper” known as Assured Guarantee, which was his first role involving strategic business development. The Uniting Church role came up and he took it in 2015. He has been lucky enough to have Matthew Moore, the CIO and head of “ethical investments”, to work with. Moore has been at UFS for about 19 years.
Everything UFS does has always had a strong ethical flavour. Both Moore and Bird were at last month’s Paris PRI conference, for instance. The manager, which outsources its equities portfolio to Ausbil and Pendal, but manages a lot of its fixed income itself, adopts a “transitions” approach to ESG, complementing its positive screens. With this approach, UFS looks to engage with investee companies, either on its own or through its managers, and remain invested when the companies are making progress towards an agreed ESG goal.
As an example, while the manager exited fossil fuel producers in 2013, it maintains AGL as not being excluded because of its progress in the renewable energy space. “Ausbil and Pendal have the clout in boardrooms which we don’t,” Bird says. “It’s in their DNA. We’re able to have an impact through our equities managers.”
As a fixed income expert, Bird says the ‘G’ in ESG was always important to him due to credit ratings. AT CFS, which was one of the first signatories to PRI, under Neil Cochrane, who became chair of the CFS staff fund and then chair of First State Super, as well as the honorary role as chair of the Fund Executives Association Ltd, he also started to “get his head around” all the other aspects of ESG.
“We are one of the longest-serving ethical investors in Australia and Matt [Moore] is one of the most experienced in the space… My investment career has really been about managing risk. There is significant risk in the markets and it’s potential tail risk. It could be dire. Even if something is a low probably it can still do real damage. You can’t ignore it. Climate change is in that category.”