Q: Tell us a bit about your background and career, and the appeal of working with responsible investment.
As an undergraduate, following an early interest in sociology, I studied environmental science and specialised in European environmental policy & regulation. My intent was, and remains, that of influencing systemic change for a more sustainable future: there is literally no planet B yet discovered in the cosmos and I have never been seduced by a speculative life on Mars. Coming from an entrepreneurial family, I always had some interest in finance and innovative thinking. However, being pragmatic, I firstly sought out project-level business transformations and worked in a number of roles under a sustainability umbrella –e.g. green building certifications, local government sustainability & community resilience, climate risk management and ESG data & analytics. It was my interest in research and the lure of influencing capital allocations that brought me to responsible investment. What appeals to me in this space is the opportunity to connect the big picture with real world impacts. I also love the intellectual appeal of continuous learning and stakeholder management coupled with the need to build capacity within and without an organisation. I admit that being good stewards of capital is easier said than done and it essentially requires a lot of creativity, dedication and personal resilience.
Q: As Head of Ethics and Impact at U Ethical, you are responsible for the implementation and oversight of responsible investing (RI), including ESG integration and stewardship, sounds like busy days?
Haha..let’s say my time under lockdown in COVID was very well spent. A few months after I started my role at U Ethical, the pandemic took hold in Australia. During that period, I had a laser focus on putting in place the processes and systems that could do justice to the organisation’s history and advocacy in social justice matters. This work, in addition to our investment performance, have been externally recognised by our industry peers in receiving the Money Magazine award for Best Australian ESG Shares Fund 2023 for U Ethical’s Australian Equities trust; which was a joyful moment. But you cannot sit on laurels: RI is about continuing to elevate your practice and aspiring to greater ambition. The to-do list that remains outstanding is best represented by a metaphor Doris Lessing depicted so well in The Golden Notebooks: we carry a boulder up a steep mountain, and each time you reach the top, the boulder falls back to the valley floor, but each time a few centimeters higher from where you started. In stewardship, I am afraid incrementalism can no longer be contemplated as ‘good enough”– we are now experiencing a polycrisis, a long chain of rupture made up of disparate interacting shocks. We cannot feel comfortable. As change makers, being comfortable means that we are not doing our job well.
Q: Can you share a bit about the stewardship strategy and how it’s implemented?
We have implemented a highly systematic ESG integration process for the investment team to review, evaluate and construct the investment portfolio. Our approach undergoes a periodic review and, at present, we are evolving our fixed income strategy. Our overarching RI approach guides and informs the ethical and ESG factors for active stewardship discussions and collaborative initiatives. We are part of a number of investor groups where we primarily act as supporting investors by leveraging our technical and research capabilities. At times, we consider leading an engagement when the topic demands it. In addition to that, we closely collaborate with many civil society organisations and experts who help us on policy submissions and topical ESG campaigns.
Q: Word has it U Ethical make use of an engagement checklist of key ethical considerations - mind sharing some details? E.g. what was it modelled against? And how is it used by personnel?
Great to know you paid attention…:). The engagement checklist is virtually a guideline: an internal living document for the broader investment team to consider ESG topics in discussions with portfolio companies. It is unrealistic to expect portfolio managers and investment analysts to be ESG “experts” and we designed it with that in mind. We tailored it on our existing ESG rating’s financial materiality model to ensure the team can cover, by sector, the most relevant ESG matters. To these, we also included additional questions from, for example, more recent modern slavery investor guidance reports and recommendations from our own Ethical Advisory Panel, which includes external stakeholders and industry experts. It is not a box ticking document but a reference to enable the team if/when required. In practice, as an investment team, we regularly discuss and flag key ESG questions we want to address in company calls or meetings and then the EESG (ethics & ESG) specialists go into greater depth and follow ups. Each EESG discussion requires a good amount of preparatory research, benchmarking, and critical thinking.
Q: Accounting for your size as an investor, how do you balance direct engagements with portfolio companies, collaborative engagements with industry peers, and advocacy initiatives?
Our RI approach helps us being agile in reviewing and prioritising ethical and ESG matters. Unfortunately, juggling investment research (including internal thematic research), proxy voting priorities and active stewardship, both direct and collaborative, translates into a zero-sum-game: i.e. a focus on one activity detracts from others, which means intent and outcomes need to be clear at the onset. For example, policy advocacy – i.e. reviewing policy consultations - is a demanding and time-consuming task but we consider it worthy as it addresses systems-wide changes (aka systematic stewardship) that would, in time, open up opportunities for both our portfolio companies and prospective investments.
Q: Is there anything about the Australian way of investment stewardship you’d like others to learn from? On an asset size basis, the Australian institutional investment market is the fifth largest globally(1). With this scale comes great responsibility and certainly influence. This means that collaborative initiatives between asset owners and fund managers can and do have leverage. The local market characteristics, small and relatively concentrated, has engendered established and open discussions between shareholders and corporate executive teams. The international exposure of many investors has also accelerated healthy discussions about investment governance and international best practice. This led, in 2018, to the Australian Council of Superannuation Investors (ACSI) launching the Australian Asset Owner Stewardship Code and the Australian Stock Exchange (ASX)’s corporate governance principles introducing ESG and climate risk considerations in its fourth edition in 2019 (compare these to the first stewardship code introduced in the United Kingdom in 2010!). Commendably, during a period of lagging and stagnating policy development, Australian market participants demonstrated the ability to influence and shift the narrative by setting up a new advocacy body such as the Australian Sustainable Finance Institute (ASFI)(2). More recently, a collaboration between ACSI, IGCC(3) and RIAA (our own version of the US/UK/Nordic-SIFs)(4) is an excellent proof of skillful collaboration: “Legal advice regarding potential liability of directors under the ISSB draft standards for forward looking statements”(5). Having said that, Australian boards lag OECD peers on gender and racial diversity, which in turn affects leadership capabilities and is likely to slowdown the responsiveness of both investors and corporates to mounting macro- and micro- economic, social and environmental challenges.
Q: There’s a lot of talk at the moment about how engagement and active ownership needs to become more effective to drive sustainability outcomes. What are your thoughts on this?
I completely agree. Effective stewardship, particularly for long-term investors, needs to be clear, specific, time-based and certainly more forceful when controversial stocks are concerned. In sight of the climate transition, we also need to ramp up more effective stewardship in relation to debt-financed-ESG. In my view, there is nothing more impactful than Green Social and Sustainability (GSS)-oriented debt covenants.
Q: An important piece of the puzzle has to do with people, ensuring there’s adequate expertise and experience involved in monitoring and engagement practices. What are some important considerations for investors here?
Numerous organisations, unfortunately, tend to hire for “cultural alignment” over “skill requirements”. You might have candidate strengths matrices but when push comes to shove, on what basis is candidate A preferred over candidate B? Besides, the lower the perception of a field being “technical”, the higher the chance of inadequate hiring, which then puts organisations at risk of financially underperforming, and in RI in particular, at risk of greenwashing. I understand it is easier to promote internally, someone who is familiar with the organisation and its mandate. Also, it often seems sufficient to sponsor an employee on a short-term course but does that turn the person into a field expert? This is why I use the term expert cautiously and I am closely following the debate on “competence greenwashing, thanks to Associate Professor Kim Shumacher from Kyushu University and Gordon Noble, Alison Atherton and Kriti Nagrath at the University of Technology in Sydney(6). This is why I play an active role as an industry mentor for RMTI Online and for UTS Business School (finance department) as an honorary associate.
Q: Time for final remarks, if you could ask for one thing of investors, what would it be?
It is simple, yet its implications are profound: invest with purpose and do that as if the world depends on it.
Thanks for your great contributions and insights Désirée!
Interviewer: Rickard Nilsson, Head of Stewardship Success, Esgaia
Interviewee: Désirée Lucchese, Head of Ethics and Impact, U Ethical Investors
Responsible Investment professional with expertise in environmental systems, climate risk and the integration of ESG data into investment strategies and decision-making. At U Ethical, Désirée leads the evolution of the ethical investment framework and U Ethical's active stewardship with portfolio companies, in collaboration with U Ethical’s investment team, key stakeholders and industry peers. Since 1985, U Ethical have developed a reputation for unwavering commitment to ethics-driven performance, contributing the majority of operating surplus to social justice advocacy and community programs. Désirée is an responsible investment and financial services mentor who is passionate about understanding systems dynamics and the drivers for change, whether social or organisational. She believes that we all have a role to play in achieving a stable and thriving society. She is an avid reader who is both equally loves ecological economics and figurative arts.
1) Following the US, UK, Japan, and Canada (Willis Tower Watson, 2022)
2) ASFI initially involved a very broad set of investors, capital allocators and civil society organisations
3) Investor Group on Climate Change
4) Responsible Investment Association of Australasia