A long time ago, in a galaxy far, far away …

A long time ago, in a galaxy far, far away …

My kids (aged six and three) are ‘Generation Alpha’; the first generation to be born entirely in the 21st century.  They can both work the remote control better than I can. During the lockdown they picked up the alphabet through an app. I don’t expect they’ll need to learn to drive. While autonomous driving is in our future, by the time they are working, the phrase ‘autonomous driving’ will surely have gone the way of the ‘horse-drawn carriage’. It will just be a car. In fact the term ‘smartphone’ has arguably already been replaced; it’s just a phone. Successful technology transitions become ubiquitous, and the transitional language is displaced by something simpler.

 

At Aegon Asset Management we spend a lot of our days looking for sustainable technology ideas.  We identify companies that are providing solutions for big problems, and whose ideas can’t easily be replicated, such that rewards go to the providers of capital as well as other stakeholders.  ‘Sustainable’ used to mean, primarily, sustainability of cashflows. The ‘G’ for corporate governance in ‘ESG’ was the prominent factor.  Despite his Nobel Prize, the visionary sustainable investor Al Gore was viewed as a maverick when I started in fund management slightly more than a decade ago.  Then, over time, the ‘E’ for environment started moving towards mainstream. The oil price fell, and some started talking of peak oil (the maximum rate of extraction) as already past us. Alternative technologies are booming - solar, wind, hydrogen, electric vehicles. ‘Alternative energy’ will just be ‘energy’ to Generation Alpha.  Transition, then ubiquity.

 

It’s the middle factor in ESG – ‘S’, for ‘social’ – than brings us to Star Wars. ‘S’ used to be understood in investment in a lot of industries as health and safety. In tech, it was data security.  These are still issues, but ‘S’ is currently being redefined and is, we would argue, the furthest from being properly integrated into most investors’ processes. It’s often viewed as too ‘political’ or too vague, like the environment was not too long ago. It is not as easy to measure or fit into a neat box.

 

How does this relate to Star Wars? My kids love Star Wars. They are fascinated by the ‘Evil Empire’.  They ask me the usual stuff kids ask of course, what makes ‘bad’ people ‘bad’, why run an intergalactic mission ...  They have no intrinsic understanding of inequality. They caught some of the BLM protests on the news and asked what it is about. We believe that the ‘S’ factor in ESG is being redefined to include equality, and that this will move into mainstream investment. Reducing it to its simplest, it’s the optimal allocation of resources. Hence the tough questions we ask of companies around diversity and inclusion, including how they measure the success of their strategies and who is accountable for them. This is a hugely exciting time to be working in fund management, where it is possible through active stewardship to help companies to better reflect the society we serve, and generating alpha while doing so.

 

This is something we not only take into account of the companies we invest in, but also companies where we are customers.

 

As an aside, we believe it is important to demonstrate our own commitment to a fully inclusive and diverse working environment, in which all our employees have equal opportunities and benefits. As a result Aegon Asset Management UK has recently improved its parental leave policies. Change starts at home.

Carolyn Bell

Investment Manager, International Equities

Carolyn Bell is an investment manager in the International Equities team, with responsibility for co-managing several funds.

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