Nuffield Foundation – Interview


research process – and it was the research process that mattered to us being a sci- ence funder. More recently, it has devel- oped further and like everyone else we think about it greatly: how we align what we are trying to do and how we earn our money.


How challenging was ESG implementation in those early days?


It was fine. It was much easier. You just screened things out. It was a bit more expensive. You would buy a segregated fund and say: “Do not invest in tobacco,” and off you went. It was straightforward. It has become more difficult as asset val- ues have gone up and access to segregated portfolios has become more restricted.


How has your ESG approach evolved into what it is today? How we express these responsible invest- ing characteristics has shifted from exclud- ing things to understanding and engaging. We do recognise that everything, all com- panies, have good and bad elements and what we try to do is make sure managers understand an on-balance test: because just as we are delegating stock selection to managers, we are delegating our moral judgments to them as well. So, for us, it is important to understand the moral out- look of managers in particular areas.


What is the central element of your ESG investment now?


We have a responsible investment policy made up of three things: how investment should be aligned with how we spend, we don’t want to exploit vulnerable people and not participating in unsustainable businesses. It is important for us that our managers can exercise an on-balance test.


Much is made of the continual drive towards ESG in institutional investment: how do you view it?


It is such an enormous and new field that everybody is trying to learn the best ways of doing things. It is difficult for the industry. It is an industry that is used to selling and using its proprietary insights. Whereas with ESG it is most successful when you are collaborating. There is a ladder within ESG, from not interested to very interested. And what most organisations struggle with is where managers fit.


How do charities differ from other forms of institutional investment? With charity investing you have moral lia- bilities, not legal liabilities. That means we are not afraid of risk in the same way. Secondly, you can increase or decrease your beneficiary pool at the trustees’ dis- cretion. Thirdly, you decide how you are going to serve your beneficiaries: whether by money or services. It is a completely pure investment play. And you think what is stopping me from making the most money I can.


What has your many years of experience taught you about investing?


I have been in the same place for some time now, the best part of 20 years. We have made 11% over that time, which is a good number.


I have been thinking about a phrase ‘Il gattopardo’ from The Leopard by Giuseppe Tomasi di Lampedusa. It is used in Italy as a phrase which means: Everything changes, but everything stays the same. I have been thinking a lot about this. So, when you think about the long term, I don’t think there is any long term – the long term is just too long to be investable. What you have is a series of short terms joined together. Nobody thinks about it as the long term, because they are too busy with five-year chunks. It


is a series of


short terms, all stitched together. That makes long-term investing difficult.


What is your outlook over those short terms?


Our assumption is to carry on working the way we have been. If bond yields change and reverted to something like they were 20 years ago, that would be interesting. At the moment there is little between earning nothing and equity- style returns – there is nothing in the middle. You would have to return to a more normal environment without quantitative easing.


What is the biggest investment lesson you have learnt?


The portfolio is constructed on the basis of having an amount of money, which under all circumstances is safe.


There are false gods. You need moral courage to make decisions that you are certain are right, why they are right and understand why they should work. Like a concept such as the equity risk premium – you have to have confidence in that – but you should be wary of things you have less confidence in.


There are things in investment that come and go, that do not have the intel- lectual underpinnings. On top of that, there is too much caution. What I call reckless caution.


Issue 110 | February 2022 | portfolio institutional | 15


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