Firing line  

Investors must prepare for climate change regulation

Investors must prepare for climate change regulation

Troy Asset Management is the investment vehicle set up by the former manager of the pension fund at GEC, a company famously cautious and known for its huge cash pile.

Troy founder, Sebastian Lyon, created a series of funds with a similarly cautious approach – a variety of multi-asset and equity income funds that hold quite a large allocation to cash.

But Troy clients, as elsewhere, are placing more demands for ethical investments on the fund manager, and as a result the company set up the Trojan Ethical Fund.

Managed by Charlotte Yonge, the fund is a multi-asset fund with a strong ethical focus.

She is also assistant fund manager of the £4.3bn Trojan Fund, which takes into account environmental, social and governance considerations in its stock selection.

She says: “It’s increasingly important with companies [that we invest in] being on the front foot. Consumers are not going to give them a basis to operate [without an ESG commitment].

“The financial cost of not being progressive on this front is going to be multiple.

“Climate change is now one of the most important threats facing us.”

Climate change costs

Even if one is sceptical about climate change, the costs are coming “down the pipe” she says.

“There’s going to be a financial cost; carbon pricing is coming and businesses need to be on the front foot because of regulation.

“It’s not yet harmonised across the world and that’s what needs to happen.”

She adds that it has become an imperative: “In trying not to lose money, we’ve always been aware of the ESG risk. 

“It applies across all of the funds.”

As an example, she cites Unilever, which has an internal carbon pricing system, whereby each business division and manufacturing site is charged for each tonne of carbon emitted and this pricing is invested into environmentally-focused technology.

“So it is already penalising itself, before the regulation.”

Microsoft, she says, takes the issue even more seriously.

“Microsoft is not only reducing its carbon footprint but offsetting every tonne of carbon it has emitted.”

Stockpicking

Regarding the £103m Trojan Ethical fund, clients have specifically asked for certain stocks to be excluded, such as tobacco and alcohol.

The difference between the two, is that the ethical fund negatively screens certain stocks, whereas ESG focuses more on engaging with the invested stock directly, talking to the company’s leaders about their sustainability and governance.

She says: “We’re going to keep monitoring these businesses, having a dialogue where we can see where they’re making a change – where they’re going to is just as important as where they are today.

“Supply chains are one of the areas that we speak to business about, so we are advising at executive level and board level.