Sustainable Investing: Are ESG impacts on the future quantifiable?

Is sustainable investing facing a crossroads in today’s market? In this episode, we welcome François Boutin-Dufresne, Managing Partner at Nordis Capital, to delve into the intricacies of sustainable investing. Join us as we discuss Nordis Capital’s contrarian approach to ESG investing, focusing on sustainability and non-financial capital. Learn how they navigate the complexities of the industry, from developing proprietary strategies to evaluating raw data for investment decisions. Don’t miss this conversation on the future of sustainable investing and how Nordis Capital is leading the way forward.

Discussion Topics: Sustainable Investing

• Meet François Boutin-Dufresne and Nordis Capital 
• Understanding Sustainable Investing 
• Facing the Challenges and Criticisms in the ESG Industry 
• Balancing Financial Returns with Sustainability
• Leveraging Shareholder Advocacy for Positive Change 
• Ensuring Data Fidelity in Sustainability Analytics
• Integrating ESG Data with Other Types of Data
• Challenges in Integrating ESG with Investment Strategies
• Measuring Impact in Public and Private Markets 
• The Landscape of Sustainable Investing in Canada
• Investing in Energy Transition and the Canadian Market 
• Adapting Investment Strategies for Sustainability
• The Future of ESG Investing

Transcript: Sustainable Investing

Ravi Chidambaram: Happy New Year to all of our listeners it’s our first ESG Mythbusters episode of 2024. Thanks to all of you for listening to the podcast I hope you’ve been enjoying it. we’re a podcast where we try to debunk, demystify, and deconstruct some key ESG preconceptions, with unfiltered knowledge and data from key experts in the field like Francois today. I’m Ravi Chidambaram, as always, CEO and founder of RIMM, Sustainability.

We’re an impact driven, tech driven company that tries to make sustainability accessible and actionable for all big and small companies and asset managers as well. First of all, Francois, thank you so much for reaching out to us and actually asking to appear on our show. It’s great that we have sophisticated listeners such as yourself and also, those who really want to be active and participate as well. So thank you for that. if I can just introduce you briefly, you’re the managing partner at Nordisk Capital, which is a Canadian, fund, very much focused on sustainability, and non-financial capital, and it’s very much at the heart of your investing strategy and has been for many years.

I understand you also oversee sustainable market strategies, which is more of a research firm, focused on ESG data information, that’s relevant, to the asset management industry. So,thank you very much, for joining us today.

François Boutin Duf: Thank you very much for having me on your show.

Ravi Chidambaram: Great. So maybe we should just get started, first of all, with some background on yourself, and also Nordisk Capital. I’m sure the listeners would love to hear more about that first. 

François Boutin Duf: I came to the space in 2002 when I did my master’s thesis on socially responsible investing. So I was one of the first in Canada to study this at, a graduate level in universities. Canada being a, Petro state, basically, if you talk about sustainable investing in here, 25 years ago, was not really the thing of many Canadians, but I really got interested in this trying to see how much more could you do than just getting financial returns while investing.

I did a lot of, development finance in previous roles. I was an economist at the international monetary fund, and then I came back to Canada in 2015. 17 and decided to do something about sustainability and try to take my macro financial background and try to move the needle on what had became then ESG investing.

And one thing that we noticed is that there was a lot of hype, but not a lot of people taking, investment decisions, moving capital towards those solutions. So we really tried to to move capital in both of our companies, which is our mission.

In fact, moving capital towards more sustainable solutions. And we were not seeing that happening at a fast enough rate at the time. And still today we know what the challenge, the challenges lie before us. So again, both of our firms, one in an investment management capacity and the other one in more than investment strategy firm.

We try to convince portfolio managers to accelerate the rate at which they are moving capital towards sustainable, investment solutions. And we’ve been in business since 2018 now. Great. that is truly a contrarian approach in a country like Canada. Could you tell us a bit more about your two companies? So we started really as an investment research firm. So global macro kind of top down, but wrapped in sustainability. We know what we have to do in terms of investments, right? We know that we have to invest more energy transition. 

To make that happen, we need to provide those who make investment decisions with investment grade kind of information so that they can actually do their jobs and move capital. So we really targeted portfolio managers and we said, look, there’s a bunch of portfolio managers running. Like energy transition funds or ESG related funds, these people are going to need, investment grade, information to, to do their job better and hopefully make greater returns out of it.

that’s the population we targeted and we did that starting 2018 and in 2020, 2021, in the midst of the pandemic. 

Then we had a third partner who came in and then in 2021, we actually got an institutional investment seed. from an emerging manager program at Nortis Capital and then that became Nortis Capital and then we seeded a long, short global equity strategy, which was the best vehicle to put all our ideas in play basically at the time.

So this again was 2020, 2021. And that was the peak, if I may say of the sustainable slash ESG investment bubble at a time when interest rates were at zero. So obviously since then interest rates came back up the whole sustainability slash ESG space, or complex if I may say has gone through a difficult period in the last two years for all sorts of reasons financials macroeconomic Political also we can come back to that later so we had a track record now of three years with our long short investment fund.

It’s not particularly brilliant, but given the constraints we have that we can only invest in something that we deem to be sustainable, we’re not going to invest into something called sustainable oil because it doesn’t exist. So it’s really a new investment style that we’re trying to nurture with this.

Those companies that are putting out sustainable solutions are going to have a bright future, maybe not this year, but certainly within the next five years, we know that the next generation of investors, of consumers, of politicians, they all want this. So something is going to have to happen in that space and we’re quite bullish about it.

Ravi Chidambaram: No, that’s a great segue actually into my next question. And that is precisely what you just alluded to that the entire ESG investing industry regardless of asset class, regardless of region in some ways, has come under fire. It’s fair to say it’s at a crossroads right now. I think, there’s been some criticism around the actual sustainable outcomes it’s delivered or not delivered.

And it was hard, I know, anecdotally, in talking to various asset managers to raise new capital around the ESG theme tell us at Nordis, how do you maintain the conviction, around your beliefs and strategies and, What does ESG investing mean to you? How do you practice it? How do you maintain that belief in this current environment?

François Boutin Duf: Well, if you go back a bit about how this whole business started, maybe 30 years ago, what sustainable investing was at the time, what’s called socially responsible investing up to the 20 2004 or so, when it actually migrated towards ESG investing. maybe it’s going to be called sustainable investing from 2024 and further on.

And I think that, this whole thing started as let’s divest out of companies that we don’t like. So if you look at asset owners, basically back in the seventies and eighties, a lot of them, didn’t want to invest in companies that were active in gaming, pornography, arms, for instance, tobacco and alcohol.

And they said, Hey, I want to have a new set of investment strategies. So they actually pushed this to their investment managers and the investment managers actually cooked something that were to their liking. 

The investment industry was reluctant because this was making their job harder, right? Because you cannot invest in those. Incredibly profitable sectors, which are gunmaking, gambling, pornography, and now oil increasingly in other sectors. 

And they, there was a huge pushback from the whole industry and understandably because you needed to innovate. And I think this whole game now is changing in a way whereby we’ve been integrating ESG into investment strategies for the last 20 years, hasn’t delivered that much in terms of environmental outcomes, in terms of governance outcomes.

It’s not that we don’t believe in it, but we need a new tool to do this. And I think the ultimate tool as in capitalistic society is to move capital. And this is actually the fundamental role of financial markets. If you think about it, it’s to intermediate capital between companies which deserve your capital and those that don’t deserve your capital, according to your values.

Everybody wants returns, but increasingly you’re going to feel uncomfortable of investing in companies which are destroying the environment or not providing social outcomes or negative social outcomes and you’re going to feel the heat from your own stakeholders. And this is the whole industry of all. Think about all these colleges endowments if you’re the CIO of a university endowment in the U S your phone is ringing in each week saying, Hey, why are you invested in ExxonMobil?

So you have a problem and then you need some investment managers like Nordisk Capital to find solutions to that in a way, which is going to give you the kind of return you’re looking for in a horizon, which is also acceptable for you. So really, we’ve been putting out investment strategies to respond to that need.

And we’re seeing that increasingly. Everybody has a role to play, and our way to play this as, say, a portfolio manager and a hedge fund, in our case, is to put out investment solutions that people want. So we’re really betting on this, even though you have a small blip. In return for the last two years in the whole sustainability complex, I don’t think this pressure is going to go out anytime soon, right? As society evolves, we get more educated about the issues. We want more sustainability, not less. 

Ravi Chidambaram: So you’re saying at a macro level in your discussions with asset managers around the world, you continue to see a very strong interest in sustainable types of investing strategies. And you’ve been active in supporting that. So that’s interesting, which shows you what you illustrated earlier that, the long term trend still points towards sustainability amongst various stakeholders, but on a micro level, could you tell our listeners a little bit more about it?

Your secret sauce at Nortis or what types, of approaches, empirical approaches you use, because part of the problem around sustainable investing is. It means so many different things to so many people. many things can somehow fall under that mantle, but of course, we find out later that probably it wasn’t really a sustainable investing strategy to begin with. So maybe if you could, enlighten us as to what that means at Nordis, and what you do push, with your clients and so on. 

François Boutin Duf: So, if you go back a bit again in the history of this whole thing, it came out of basically exclusions of certain sectors in which you could not invest. And then in the mid 2000s or early 2000s, then you had these ESG scoring agencies who came out and now that actually had a good run for maybe the last.

10 years or so, and now there’s more than probably 500 such scoring agencies based on qualitative analysis, AI, name it, there’s a whole plethora of them. There’s academic research based on this now, which is also showing that many of them are completely contradictory. 

And if you look this at globally, it’s a total mess. And that’s been acknowledged more and more by the investment industry, even the regulatory agencies are trying to do something about it, and this is what actually led towards. let’s say the regulation in the sector, for instance, what came out of Europe with the sustainable finance regulations that came out a couple of years ago, this was an attempt basically to clean the house because everybody was saying everything and basically ESG was becoming what your client wants it to be.

And that’s usually problematic because, asset managers are really good in selling the client what he wants. I’m going to sell you something, but does it really achieve what you’re asking? No, but I sold this pen to you basically. And that’s, that, that was quite problematic.

We really wanted to have something simple, basically. So we divided, ESG and sustainability into two channels. So the first one, ESG. We look, we take ESG basically as looking at the operations of a firm.

How do you do the product you’re doing? And then, you have good working relations, your stakeholders. Do you pay your taxes? How do you manage your governance structure? this is really ESG. let’s say in this, you can understand how the company is run basically. And then sustainability is that what are you actually producing in terms of goods and services?

is it positive for the world or is it negative? For the world. So here we take two examples, one company, which had one of the best ESG scores in the world for ages was Philip Morris, world, biggest, tobacco producer, one of the biggest, they had an investor relations department, probably a 500 people, which were really good.

At answering, questionnaires coming out of ESG data companies. And so they scored really high on those questionnaires. but you know what? they make products which kill people and,they pay huge salaries to their staff. on the operation side, this company is perfect.

Problem is they’re producing tobacco. 

So take a company like Tesla, it’s a great product, right? the company has strived to popularize the idea of an electric car that said the way it does it, it’s operations are not, it’s not really great. So one way to look at how these things are important for each companies and sector, we actually look at the SASB materiality map, as a useful tool to look at what is material for each.

Industry and each company, and if a company again, if an oil company is actually producing oil, but it’s trying to sell us on sustainability because they have a paper recycling program, we’re going to say, that doesn’t matter to your business plan. So really we’ve mapped the world using this kind of framework in our investment universe.

And we take the longs and the companies for which we actually like the product or the service and the shorts, the companies, we don’t like the service. Or the product and then in terms of operations, if we can live with your operations, you’re going to make it into your universe, but if your operations are not good enough, like for Tesla, you’re not going to make it for all sorts of reasons.

And how do you make sure? we have a simple methodology, which everybody understands. So if you go to a client and you explain this to a client, then we get it. And then you give examples. Why are you excluding this company? Why are you including this company? Can you, do you track the reasons?

But if you just give an ESG score, which has been randomized and it’s based on one single company, then you lose your client. So the ESG scores and the ESG integration part of the business was quite convenient for the industry when it’s.

Started because they didn’t have to ask the real questions. Basically, can I, or do I want to invest in a company, which is destroying the environment? In some cases they had a good ESG score while they were still doing it. And in our case, we’re so well, it’s getting, we’re a bit late in the game to do this, right?

I’m based in Canada now, and it’s the worst winter ever. Lakes are not even freezing in Quebec this year. We’ve never seen this. I’ve never seen this in my whole world. We’re seeing it firsthand. So we don’t have time for this. We start, we have to move capital at a much faster rate towards those companies, which have positive solutions for the world.

Ravi Chidambaram: Yeah, no, thanks Francois. So to summarize that, for our listeners, I think it’s fair to say that you use a SASB framework, which basically, talks about what are the material ESG factors that go into a company’s profit model, if you will, what really drives their profit, you look, then you break it down into what is the product or service, fundamentally, is it, made and delivered in a sustainable way?

You add the operations layer to it. basically that’s how you come up with your pool of, inclusive and exclusive, types of, stocks. so it does seem pretty clear and pretty easy to explain. I think what you’re saying is, you’re going to go to the heart of the profit model.

And judge whether those products and services, are delivered and made in a sustainable way. I guess a couple of questions coming out of that, one, what about improvement? let’s say Tesla operationally. Were to improve its performance over time. Would you then reconsider, a company like Tesla and Philip Morris?

I guess, conversely, you could never consider because most of their profits, no matter what they do, no matter how they diversify. they will make most of their money from tobacco. So I guess it would always be on your excluded list. but you know,How, how do you. Cover that in your investment framework.

François Boutin Duf: that’s an excellent question. I think in the case of Tesla, obviously, this is where the role of engagement and shareholder advocacy comes in, right? Tesla is a great product, it’s a huge company, obviously, but I think they’re, this is where a big owner of Tesla shares could come in and say, Hey, could you work on this, and that aspect of your operations?

I think you would actually realize shareholder value if you’d improve this, cause you would have more investors like Nordisk Capital and the likes of running after sustainable. Place that would want to invest in your company. So this is where I guess the leverage of big institutional investors lined up together can actually make a difference.

Now, the problem is that are they big enough and are they able to induce that level of change in companies? there’s a whole body of literature saying yes, and the whole body of literature saying no. so it’s really hard to do, but it’s a possibility. and I think companies do improve, think about Walmart when it started out and,

it was not a super company. It was actually recognized as being a, main street, killer basically in the United States and then really crappy working relations. But, Walmart actually, now you have, some of them are unionized in Canada, first, second, they’re actually providing their employees with benefits.

That was not the case 20 years ago. So they’re actually moving up that kind of operations. and make them one of the most investable retail sector, play actually now for sustainable players. And in fact, given the sheer size of their supply chain, they’re probably the biggest, they’re probably the company, which has the biggest impact on the global supply chain if they change your standards.

So this is why. This company got that it actually, it can actually make a change. And if you look at the stakeholders with whom it’s working, this is when you can say, this company is having some sort of impact in communities around the world, because they’re a good employer, they’re making a strides in the supply chain and they’re controlling their emissions, for instance, and all sorts of other issues.

Ravi Chidambaram: Yeah. No that so clearly you do take into account positive change, in your investment strategy and that makes a lot of sense you alluded to the fact that there’s a lot of third party ratings and other Information available. I agree with you that it’s a become commoditized and be very difficult to interpret and use in investment analytics.

François Boutin Duf: is it fair to say that Nordis, almost all of your investment strategies are developed in a proprietary way in house. You’re not really relying like many other, asset managers, and research firms on third party ratings, and research and so on. No, we actually take raw data. We make our own, let’s say sustainability view of the firm. And then we check sometimes the ratings to say, they’re available for free now on the internet. Those ratings gives you also an idea of the value of those ratings. If they’re free, that means that,you’re trying to sell you something here.

but no, we run our own thematic investment strategies. And then again, we can explain to our client, why are we holding this, particular stock for sustainability reasons, but also for financial, purely financial, reasons also in the portfolio at any time. And then sometimes if we find a new nugget of information, I give an example at one point, no, we’re not as.

one of the biggest healthcare companies in the world making strides on insulin and now on, on weight control drugs. So that company actually at one point was actually charging 2000 or 3, 000 a month per insulin user in the United States for its product. And they had a huge profit margin, like 40 percent because it’s a duopoly basically for insulin makers in the world.

And we said, Hey, we don’t like that kind of business practice, right? You’re making a life saving drug and you’re making an incredible money out of it. Why don’t you make it more accessible to people who need it in countries like the U. S. And that, so we kept it out of our investment universe.

And then we learned that they actually lowered the price, I think it was sometime last year, on insulin drugs, and then it made it back. So this is where, we’re pragmatic about why we want to hold this company. And again, the product is a perfect company, but the operations, it’s a perfect, this is one of the most sustainable companies in the world.

They report, they have perfect sustainability reports. they take all the boxes. But their business practices was a bit shady for us. And this is what we didn’t like. And, we just found other investment ideas and then it came back in and then we could trade it if we wanted now.

So it’s very interesting. So you do more proprietary work than really rely on third party information. Sometimes you cross check with third party information, if I understand correctly, but, you alluded to the fact that you ingest raw data. to develop your analytics, I know from, our experience at RIM that, we have a big database as well of over 20, 000 companies, but I noticed an inflection point also with the market on data quality, data fidelityand so on. so even the raw data that’s reported usually in the public domain and sustainability reports and so on, has come under fire. like the ratings, in fact. how do you ensure that the data you ingest? has some fidelity to it, or, at least, some degree of accuracy that you can use in your analytics frameworks. So yeah, that’s a hard question to address because all the data that’s reported is actually company reported. It’s not third party verified. And now we’re waiting until these, international sustainability standards board norms to come out in a couple of years. And you’re going to have verification, but that’s probably five to 10 years away, right?

The thing is with us, because we’re investors, we make decisions with incomplete information every day. And that’s part of our, that’s part of the game, this whole thing about sustainability and having perfect information about sustainability, all the impact, all the data that comes out, that would be great in a perfect world, but it’s never going to be great.

So you have to make assumptions, then you have to cross check stuff. You have to use sources that are. Not really related to the company and then some providers like, carbon data for instance it was self reported by companies for a long time And then you had some third party providers that were giving you like their own assessment like cdp for instance or others like this now you have New, companies using satellite data, which is reporting on its own on, on, on every site of those, let’s say, industries that are polluting like cement companies, for instance, reporting GHG production at every industrial site of that company.

So that’s interesting. And that’s free data and available. It’s all about cross checking this, but never taking, that data for cash. So we don’t, we don’t want to overkill it either. we’re a bunch of engineers, economists, actuaries, portfolio managers in our firm. We love numbers, but we know how they’re made.

And, and that’s the problem. So a lot of it is fudging and in the sustainability business, it’s fudging plus communications. that are coming together. So we really have to be careful with this, but in our case, when we look at the product of a company and the way, the profit is derived, we can look at revenue streams, we can look at, we can look at CapEx for instance, what is the company doing when it’s CapEx?

So if you see that the company is going, has the revenues you want associated to your investment theme, and is also investing into the future into that theme and is actually transitioning, you don’t have to start from a really high point here, but if you have to say. Take Orsted, for instance, which is,a Danish utility, which was a hundred percent fossil fuel based maybe 15, 20 years ago.

And now it made a complete transition. So this is possible, but then you have to be able to track this through time. You look at those revenues, those CapEx management commitment on it. and that’s how we become comfortable with that data and the story in general, which is also the narrative of our investments.

Ravi Chidambaram: Yeah, no, that makes a lot of sense. You make a very good point that actually the value of ESG data can be amplified. And if you integrate it with other types of data, like macroeconomic data, financial data, and you look at it in a holistic bundle,

François Boutin Duf: that’s an interesting point also. But the whole problem also with this ESG investing industry is that you have on the one hand in asset management firms, you have an ESG silo, and then you have an investment silo. And these guys don’t talk. They don’t want to talk, right?

because you have to value externalities right into the P& L. That’s what ESG is all about. Non financial impacts that create financial impacts. So basically the way it works often is the portfolio managers say to the ESG people, Hey, I traded this today. Can you justify this in my portfolio using your ESG magic? And this is unfortunately the majority of people in the industry work like this. And then you have the salespeople and the CIOs of those strategies have to go out there saying, no, that’s not how we work because sustainability is really important.

It’s the crux of what we do. And this is the official discourse. But I can tell you, I, I knocked on a lot of doors and I can still see this stuff happening. And for some extent, this works because asset owners are buying this stuff. 

But it’s not what we’re doing because this is not what we need. We don’t need more of that. We need to move capital. So the theory of change is that you want to change the outcomes of the whole financial industry on environment or social issues, while you’ve got to change the way you invest. It’s as simple as that.

Yep, absolutely. so far, Francois, we’ve been talking about, some of your proprietary,frameworks that you’ve been using, in generating alpha, for your clients, for yourselves. however, let’s come to the other part of the equation, in sustainable investing, which is trying to quantify the actual impact, of these non financial capitals, impact on human capital, environmental capital.

Ravi Chidambaram: And so on. a lot of ESG asset managers, I would say are a bit short in that area. they like to boast about their alpha, but I very rarely seen audited reports or disclosed information about their collective, social environmental governance kind of impact, across their portfolio. So I was wondering, how do you go about that part of it?

François Boutin Duf: Because, at the end of the day, as you said, shareholders have. A lot of power, over companies in terms of their focus areas. and,to that extent. impact is going to have to be a key part of this, so how do you view that? I think you have to distinguish maybe, what was happening in public markets and private markets. Think about private markets. Venture capital, private equity impact is actually defined by the additionality of capital. You’re actually providing capital to a firm, which is scarce in capital. And then by your investment, you’re going to make some things happen.

And hopefully this is going to be aligned with the values you want. Is it environment stuff or social stuff? So I think that’s easy to demonstrate or easier to demonstrate that if you’re investing in private equity or VC, you can actually. Claim some impact with your portfolio now in public markets, much harder, especially secondary public markets, which is everybody’s trading.

Your real impact actually is, putting pressure upwards or downwards on a stock price. That’s your real impact as an investor. If you think about it if you invest in a company, the stock price goes up, the signal you’re giving to the management of that company is that, Hey, I love your corporate business plan for the next five years.

I agree with your CapEx. I agree with where you’re taking your business, how you run your operations. I’m happy with this. Here’s 20 million, my investment. And hopefully you make a huge bonus at the end of the year, because your options on your own pay package, if you’re the CEO of that company are actually valued now, this is really thinking about how capitalistic markets function on the other hand, if you’re not happy with that company and you’re not going to invest or even better, what we do when we think companies are not going to make it, we short.

Sell some companies, then you’re just saying, guys, your company is not worthy enough of my capital. Or I think actually your business, you’re so wrong on your business model. I think you’re going to die within the next five years. And I’m going to short sell your stock. So this is what happened with companies in the coal sector, all those low price to equity ratio companies, and even tobacco, coal.

And in some cases, in some periods, those companies can be great investments, but we think as sustainability goes on, these companies are not going to make the next century for sure.

Ravi Chidambaram: that’s interesting. So for you, the way you would measure impact in the public ESG space is the share price. and that is the ultimate statement in your view. I think it’s more clear. as you said, you’re getting capital where you need to get capital, for repositioning, reshifting of economic themes.

François Boutin Duf: you can also say that, I’m invested in such and such investment theme, which is aligned to SDGs or whatever, but that’s 

Ravi Chidambaram: it’s a bit fluffy, maybe. Yeah. Yeah. 

So I guess you’re going to measure it more, by share price. that’s an interesting take on public ESG investing. very interesting. I wanted to ask you two more questions.

One is, Nordis, as you pointed out is a Canadian based firm, investment manager and Canada. is not known, certainly, for being at the forefront, at least on environmental matters, and its economy is heavily dependent, like Australia, say, another OECD economy, on fossil fuels, natural resources and so on.

how does that play out for you on a day to day basis, sitting in Montreal? where, do you find, more and more people are coming around to your view? You’re very much viewed as a heretic or in the minority how does that play out in a Canadian context?

François Boutin Duf: that’s interesting because, recently Montreal is trying to claim it’s fame into sustainable investing, seeing, saying it wants to become a platform for North American sustainable investors. So there’s a lot of hype going around this and some sort of incubation hub of firms like ourselves.

We have also some, large pension funds here in town who are divesting out of fossil fuels. So that’s happening at a big level. it’s not the case in every Canadian pension fund, but it’s happening here in Quebec. We’re seeing it. and also, here we’re building an economy which is 100 percent green here in Quebec.

It’s one of the greenest economy in the world because we have 100 percent hydropower and now we want to become a battery maker of the world. So that’s changing the narrative also domestically saying that, hey, there’s huge business opportunities in this. And also we’re just seeing with my own kids, my friends, stakeholders, everybody wants to do something about sustainability.

When we recruit people in our firm for one job, we get 200 CVs to do what we’re doing. So we know that the industry is going there. we’re seeing the hype around it. And then again, I think even if the institutional space is going to be moving, the endowments, family offices also want this.

we’re quite happy to be in this space. it’s but I guess, this is not a sprint, it’s a marathon. 

and we’re happy to run our part. Hopefully some more are going to get on board and we’re going to have the support of more and more people.

Ravi Chidambaram: Yup. No, I get it. just one more on Canada. Do you invest in this sort of energy transition theme in Canada, for companies that were, say, very fossil fuel intensive, but Changing,the mix and so on. is that a theme you

François Boutin Duf: that,

Ravi Chidambaram: like from what you’ve told me, you have a pretty global portfolio.

yes, it is a global portfolio. So Canada is a hard, A, it’s a really small stock market. B, Canadian stock market is oil, mines and banks. This is like probably 90 percent of the float. so it’s hard to have a system. we’ve put together a Canadian investment strategy using our own things. Of mining companies, which are mining the kind of the metals and the minerals we need for the transition.

François Boutin Duf: we found some insurance companies also in there that actually fit our bill. there’s something to be done, but it’s hard. if there’s one thing actually we understand with our investment philosophy is that if you think you’re going to actually make sustainability while investing by hugging the benchmark, with your investment strategies, that’s not going to happen because the world in which we’re going is going to be quite different, I think, than the one we’ve had for the last 25 years.

The economy is not fully shifted yet. but we’re going to have to accept as investors that we’re going to have to take much more risk as investment managers and putting out solutions out there, but also especially asset owners, which are going to have to measure those risks and allocate capital accordingly, but also pensioneers and consumers and the whole society.

we have to run that marathon basically. and hopefully it’s going to be sooner than later. 

Ravi Chidambaram: Yup. So that’s a great segue into my final question, whither the world of ESG investing,given that we’re at this crossroads. returns are down, political and even, other stakeholder sentiment is turning against it a little bit. Clearly the space is in need of some reform, you, refer to SFDR legislation in the EU and so on, trying to do that.

François Boutin Duf: what’s your take as an industry practitioner of where this industry is going? Look, the biggest investor in energy transition in the world is Texas. Okay, that’s not going to change and they’re investing into renewables because renewables are cheaper. So that’s just nailing the issue saying despite the politics, despite whatever is going on, despite the interest rates, there’s a real thing happening here.

People are moving and, and here, like I give an example in Quebec. Hydro Quebec, which is the national utility wants to double its capacity for the next 25 years. That’s going to be huge, right? So this is happening. And at the same time, I’m looking at those returns on a, some of those green, let’s say project developers are trading at the same price that we’re trading back in the financial crisis of 2009.

So this is an incredible investment opportunity if you think about it, because you need those green utility developers, you’re going to need them like you never needed them in the past, and you can buy them at a fraction of the price that you could actually purchase them two years ago, right? 

The stock price is down 80%. So if you think about this, these assets are still good. These guys still have a special sauce and develop projects. Just that interest rates are high. But these guys are not going to go bankrupt. Their project is still going to pay out to investors. So I think the time is ripe to reassess this whole thing.

And at one point, we’re going to hit the floor with those strategies and then it’s going to roar back because people want them. Governments want them. Consumers want them. Even reluctant politicians want them because they need those companies and we need, we also know that we need innovation in this society and sustainability innovation is actually.

Closely tied up and we’re quite happy to be able to invest in those themes.

Ravi Chidambaram: No, that’s well said. I think for all of us who are in the, ESG industry. and believers in sustainability. I think,it’s very reassuring to hear from an experienced industry practitioner that the long term future, is still good, Francois, I thank you so much for joining us on the show today.

I think you really made some very interesting points about, Nordis, your unique investment strategy, the state of the industry, where it’s going. the Canadian context as well. so thank you for all the great insights and your initiative today in, in, in joining the show.

François Boutin Duf: Thank you much, Ravi. And, I look forward to work with you again.

Ravi Chidambaram: Yeah, absolutely. So I just want to close by,thanking our listeners for joining in. I hope you enjoy the podcast episode with Francois. I certainly did. we continue to take on various, myths and misconceptions about ESG and try to tackle them. I hope we did in this program as well, and you’ve gained some new insights and perspectives.

keep listening, to the show. Please do reach out to us if you have feedback, comments, want to appear on the show and so on. and,wishing you a good few weeks ahead until our next episode. Francois, thanks again and good night. Thank you.

Our Guest: François Boutin-Dufresne

François is a recognized expert in sustainable investing and ESG topics. He is currently the Managing Partner at sister companies Nordis Capital and Sustainable Market Strategies which serve a global client base and are focused exclusively on sustainable investing. His beliefs and focus are built on the premise that investors can achieve impact and improve longer term risk-adjusted returns by investing in sustainability megatrends. His deep knowledge of the market is through his experience in Sustainable Market Strategies, an investment research firm that has published over 200 high-quality, in-depth reports covering relevant sustainability topics over the last 5 years.