Running Out of Time – A call to action from our CEO

As an industry we need to break the status quo.

This post is issued by Osmosis (Holdings) Limited, a London based investment management group. For more information, please contact Lisa Harrison on 07716 912832 or [email protected]

As an industry we need to break the Status Quo

Those over a certain age may recall a band from the UK called Status Quo.  For our younger clients, they were big back in the ’70s and ’80s.  I was surprised to learn they are still going and have just released a new album. Though their back catalogue is prolific, 33 albums, for those with a critical ear, it will all sound similar.  In their case, history both rhymes and chimes. 

https://www.youtube.com/watch?v=oJAmKYAH85E.

Sometimes it is artists who best capture and reflect the issues of the day – and “Running out of Time”, a single on the latest album perfectly summarises where the investment management industry is today. And to lean heavily into the reference, it is our industry’s “status quo” on climate-related investing that is acting as one of the bottlenecks in facilitating the change we so urgently need.

The climate emergency is upon us.  Not a day passes seemingly without a climate catastrophe in the news: floods, wildfires, drought, coral bleaching, habitat loss, plastics in the ocean and microplastics in our food.  These are no longer just gentle wake up calls.

But as an industry, we procrastinate: wasting time on panels, accusing each other of greenwashing, and endlessly debating the need for ESG standardisation.  The very combination of E, S and G is a central conceit as if all society’s woes could be solved with one investment approach. If Utopia were a place, it would be a portfolio with 109 different underlying ESG factors – where impact and return were delivered in equal and meaningful measure. But it isn’t. Instead, most investors end up with a portfolio that ticks all the right boxes across a broad range of issues, but that fails to meaningfully address any single one.  Impact is being lost by trying to do too much.  Complexity is an art so beautifully mastered by the investment industry that the virtues of simplicity have been forgotten, sacrificed to keep up with the ever-increasing demands for a “fully integrated “approach.

If Utopia were a place, it would be a portfolio with 109 different underlying ESG factors – where impact and return were delivered in equal and meaningful measure.

Osmosis has been guilty of some of the misdemeanours listed above, but the time has come to be more vocal.  The growth of the firm, combined with the unique knowledge and insights we have acquired over the past 12 years, provides us with the authority and the obligation to speak. We hope, perhaps, to be heard. 

Sustainable finance is rife with inconsistency and contradiction.  Banks claim to be sustainable while extending loans to the fossil fuel industry.  Asset Managers shout loudly about their sustainability credentials while buying this same energy debt, and Asset Owners drag their feet in shifting their capital from climate laggards to climate leaders while making net-zero commitments.  Aren’t these actions posing the questions we need to be asking ourselves? Is this hypocrisy tenable for the short or medium-term? The long-term doesn’t matter because if we don’t speed up and call this out, well, the consequences are known to all.

The long-term doesn’t matter because if we don’t speed up and call this out, well, the consequences are known to all.

So how is Osmosis different? Why should we be able to cast aspersions and distribute criticism so easily?  First, we focus on action.  In conventional ESG ratings, companies are scored highly on their climate and environmental ambitions.  We have learned that talk is cheap. We will only overweight those companies with demonstrated environmental impact and peer-leading sustainability practices in the present and underweight or short the environmental laggards.  Too many firms have enticed investors with ambitious sustainability goals only to fall far short.  We will not be swayed.

Second, Osmosis is focused exclusively on environmental investing.  Individual E, S and G metrics often cancel each other, leading to unfocused portfolios with opposing internal forces and compromising impact in any one area.  The transition to a greener economy is complicated and difficult enough to navigate as an investor.  Trying to also make a difference in Social and Governance outcomes, albeit well-intended, is more likely to dilute shareholder impact and undermine good intentions. 

An environmental thematic investment approach does not get simpler than that. To investors, we say don’t settle for hope value.  We can mitigate the risk that comes with lowering your environmental footprint.  You also need not settle for the EU / Paris-Aligned incrementalist approach when Carbon targets that are set for 2030 can be achieved today.

Individual E, S and G metrics often cancel each other, leading to unfocused portfolios with opposing internal forces and compromising impact in any one area. 

Our Core Equity strategies are the fastest-growing part of our business and now exceed over £2bn* in aum. With a four-year track record of replicating the risk exposures of the benchmark in a low-cost, liquid portfolio, the Core strategies significantly reduce the relative ownership of Carbon, Water and Waste (over 60% as of 30 June 21).  The Resource Efficient Core Equity Fund has consistently outperformed its benchmark since launch (see factsheet) and was recently awarded ‘Environmental Fund of the Year’.   

In a bid to break the status quo and move forward with our original aspirations for a more sustainable re-allocation of capital, we are setting our targets for our Core Equity range to raise $20 billion in AUM by 2025. As part of this target, we will be making sure that the fees on our core range of products remain attractive, not just for institutions but for retail investors too. We need to step up to the task ahead of us, and that means delivering a sustainable investment approach accessible to all.  

We need to step up to the task ahead of us and that means a sustainable investment approach accessible for all  

But don’t judge us on our intent.  Rather, evaluate our actions over the coming months and years – we will practice what we preach.  The greater the assets, the louder our voice will become and the more meaningful our engagement programs will be.  And over time, with the effective stewardship of our client’s investments, we will ultimately have a greater impact on the cost of capital for those companies who refuse to change.  Ambitious, yes, but from where I sit today, without ambition from all stakeholders, the status quo (rather like the music) will never change.

Yours,

Ben Dear

The Osmosis Resource Efficient Core Equity Fund is not available for US Investors. Separate accounts are available for US investors using the same model and investment objective of the Fund.

Past performance may not be indicative of future results.

*Osmosis Investment Management UK Ltd (“OIM UK”) is an affiliate of Osmosis Investment Management US LLC (“OIM US”). Osmosis Investment Management AUM includes discretionary assets under management of OIM US and OIM UK and assets invested in model programs provided by OIM US and OIM UK.

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Important Information

This document was prepared and issued by Osmosis Investment Research Solutions Limited (“OIRS”). OIRS is an affiliate of Osmosis Investment Management US LLC (regulated in the US by the SEC) and Osmosis Investment Management UK Limited (regulated in the UK by the FCA). OIRS and these affiliated companies are wholly owned by Osmosis (Holdings) Limited (“Osmosis”), a UK based financial services group. Osmosis has been operating its Model of Resource Efficiency since 2011.

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