In a far-reaching interview, Samantha Lamb, senior fund manager and head of ESG for fixed income, discusses everything from green financing to the importance of timing risk. Sam also argues we have to have an honest conversation about what we as investors can realistically achieve if we are all to reach our ESG goals.
Amanda Young: Welcome to the Aberdeen Standard Investments' Responsible Investing Podcast designed to discuss all things responsible investment. Today, I am delighted to be joined by my colleague, Samantha Lamb, who is one of our senior fund managers and head of ESG for fixed income. Sam, a warm welcome today.
Samantha Lamb: It's lovely to be here, Amanda. Thank you very much for the invitation.
Amanda: Sam grew up on the west coast of Scotland. In designing this podcast, an interesting fact I learned about Sam is that as a daughter of a commander in the Navy, she had a unique christening and she was in fact christened on board a submarine. Sam grew up with a notion of service to your country but she also found on reaching university that those around her often saw those in the military as people of war.
It's really interesting because this different view has helped her understand very early on that people's experience often heavily influences their perception on the world around them. Sam had a questioning mind as a child including asking a Scripture Union camp at about the age of nine where the dinosaurs were in the Bible. Her natural ability to question and challenge has helped her to develop her own view of the world in which we live.
After finishing her philosophy degree at university, she thought about how she could influence positive change. Campaigning, journalism were all considered as career options but she realised that influence through business was greater and she now has a role where she is able to incrementally make a difference through the investment she makes, how she engages with the companies in which she holds debt as well as how she allocates capital.
Sam's favourite TV series is The West Wing believing it does a great job of explaining the complexities of governing, getting decisions made, and influencing change as well as being highly entertaining.
More recently, Sam became a mom to a little girl and is currently expecting her second child. Sadly, while becoming a mom, Sam also lost her own mom which has clearly had a profound impact on her priorities in life.
Sam is a long-standing member of the Aberdeen Standard Investments team and over the past few years, her role has expanded to take on responsibility for ESG within fixed income.
Sam, perhaps we can begin with hearing a little bit about your move into ESG. You are a senior fund manager within the fixed income team and in more recent years you've taken this responsibility for leading the fixed income ESG work. Can you tell us a little bit about how all this came about?
Samantha: It's quite interesting going back to thinking about leaving university and what your aspirations are because I think quickly when you then start looking for an actual job you realise that finding a job that you're able to do and someone who will employ you become far more important. I was able to join Aberdeen Standard Investments as a high-yield credit analyst. That's almost 15 years ago and then I was able to move into investment-grade portfolio management.
If I think about the early days and working in credit, we've always integrated ESG into our credit analysis. We just didn't think about it as that at the time. We were always looking at the governance of businesses and the decisions that management were making and whether we felt they were managing the risk. The opportunity to then work more closely with clients on the subject came when we built an SRI fund in 2012.
I'm not an ESG expert as such. I'm not the person in the business that you want to come and speak to about our views on climate. My expertise has really been about how we then bring these ideas, these themes, into our research process, and our portfolio construction.
Amanda: Many people see ESG issues as rather homogenous and some people think that it's quite easy just to apply these factors across investments. Now, that clearly is not the case. I'm quite keen to hear your view on where ESG factors are unique to fixed income and how your approach might be different from other asset classes.
Samantha: If we're thinking about just looking at companies which is one part of fixed income, then this big part of that that feels very similar to analysing in the way that equities would, that when we are assessing the company, how they're currently managing their ESG risk within the business but also looking at the sustainability of the business, that would feel very similar.
It's definitely true that sectors vary in terms of the waking ESG risks but all businesses can suffer from poor governance. Where fixed income then becomes different is that it's about the timing of the risks. If an investment now is really about are the concerns so severe that we think there's a risk of imminent default? Otherwise, we can then think about when we think these risks may appear and it may mean that we can own the five-year debt of a company but we may not want to own the 30-year debt of a company.
I think broadly at the moment and think about that what does that mean with an actual example, if we were to think about an auto manufacturer and maybe we feel that they need to transition their business due to changes that are coming that consumers are more focused on electric vehicles. We don't necessarily think that's going to happen in the next five years but it's something that on a 30-year trajectory, their businesses could look very different so we're not confident that perhaps how that business might look. I don't think the ESG market more broadly is very good at considering the timing of risks at the moment.
Amanda: Yes. I think that's actually a valid point.
Samantha: It's not just important. It is important to fixed income, it's critical to fixed income but when you're analysing a company, it is also important when you're thinking about their risk because the further where risk is the more time the company has to adjust or transform their business to meet that risk.
Amanda: It would be also interesting to hear a little bit about the differences within the fixed income asset class. You just touched there on corporate debt which as you say has some similarities to investing in listed companies. You're exposed to so many different instruments from corporate bonds, private infrastructure debt, government bonds. Are you able to touch a little bit about how you approach ESG across all of these different types of investment instruments?
Samantha: I think it's maybe important to start with what we see as being similar and whatever instrument we're analysing or investment within fixed income, we start with the same blank of sheet paper more asking ourselves what are the material risks to this investment? That's no different when we're thinking about ESG risks. What we're fundamentally trying to understand is do we understand what the ESG risks to that investment are? Do we think they're being well-managed and have they been mitigated?
What changes then when we think about whether sovereigns or corporates is the types of metrics that we might look at to help us decide how well they're managing those risks. For example, on the sovereign side, we also consider the political. We think about corruption perception, political stability. We'll be thinking about things like ease of doing business from a social aspect, life expectancy.
Whereas within companies, it's very specific. We'll be thinking about the foreign mining company, the health and safety, and how well they're looking after their employees. From a high level really very similar but when you get into the detail and the metrics that you get the difference and what might be looking at. We generally try to avoid giving a template analyst.
It's a real balance of giving them some areas that we think it's important for them to consider but we need the analyst to be able to look at business holistically and do just that, to analyse it, rather than just filling in boxes on a research template. There's a real risk if it's too prescriptive that for a particular business they could miss something that's really very critical. We're trying to give the analysts the tools and how they conduct this ESG analysis but without being prescriptive exactly what they should look at in every circumstance.
Amanda: Which makes sense given the types of instruments you are actually investing in. It wouldn't be right to have a senior fixed income person on my podcast without asking them about green bonds. These have obviously been around for some time and we're not starting to hear about social bonds. I'd really like to get your view on both the green and the social bond market, particularly green bond development, and how you think they might develop in the future.
Samantha: I'll be honest, Amanda, I actually spend more time talking about this subject externally than I probably do within my team.
Samantha: I get it. It's like green bonds are unique to the fixed income market, they're a very-- It gives us a unique capability of being able to direct investment and know exactly where the proceeds are going and for some of our clients, that is very useful in the types of portfolios that they want to build. We see a lot of headlines around the exponential growth and that's absolutely true, but it's come off an incredibly low base. When we look at the corporate bond market for Europe, where we've seen the most issuance so far, it's still less than 5% and when you then look at sectors that's heavily dominated by utilities, by real estate, and by banks, we're just starting to see that change. We've just seen some issuance from the auto manufacturers and different types of businesses now coming and looking at green bonds as well, but it's just different that we've always looked at ESG integration and that's been our history.
We look at the business holistically. As we talked about how the issue would be managed within the business today, but also the sustainability of the business over the longer-term. Now, green bonds can help us understand exactly where the investment is going. Typically, they're being used to finance investment to adjust to these longer-term changes. For utility, it's about financing building renewables and helping them decommission their coal power, for example.
I do think they will increasingly grow in importance, but there's also tension going on at the moment where there's an expectation because it's a green bond that the issue should get cheaper financing. From our perspective when we look at a business holistically and it's the same credit risk whether it's a green bond or a normal bond, we think those instruments should price at the same level.
For most of our portfolio managers, they'll pick the bond that pays better and gives us a better return. I think there's a risk that we're seeing a bubble being created in green bonds at the moment and particularly, that could get driven by regulatory changes, et cetera, as well. My preference is still that we look at those businesses holistically because just because it's a green bond doesn't make it are an overall green company and certainly versus its peers. I'm not sure that that's always understood.
Amanda: That's been really helpful. Thank you. I'm now going to touch a little bit on diversity and how being a woman has influenced your style as a fund manager. We don't have many senior female fund managers in the industry and probably fewer in the fixed income world. My question is, do you think that being a female has given you a different perspective on ESG matters from your male colleagues and how do you influence your colleagues to understand some of the potentially softer elements on environmental and social issues?
Samantha: I don't actually think it's gender that's given me a different perspective if I'm honest. I think it was that I was younger than-
Amanda: That's good to hear.
Samantha: -many of my team members. If I think about the analyst and the portfolio managers that we've got coming through now, male or female, they're passionate about ESG. I think the gap when I joined the team was that in terms of older members and I think to some extent how have they've been trained to think about investments. Whereas I think that is changing over time, but when I think about some of those more seasoned investors, where I've had to persuade them along the way, I think the challenge hasn't necessarily been- they're good credit analysts and good credit analysis means that you are always looking at these risks.
What I've had to persuade them of is that ESG isn't something new, it had this feel or reputation. We still see this in the US at the moment that it's associated with charity and philanthropic and giving up return and then so persuading them that the risks, the material risks that they were looking at in the business that those were often ESG risks. It was just about correctly labelling them has been a bigger part of the challenge. I think once the arguments won, it's much easier to get them to understand the importance.
Amanda: That's so good to hear and it's been really interesting to hear about ESG factors as just part of proper risk assessment of your investment process. I'm going to switch a little bit here and I'm looking for a bit of personal inspiration from you, Sam. Now, for those who are regular listeners, you'll know that I ask all my guests for a recommendation of a book or TV show or perhaps a film that might have inspire them recently, as it relates to sustainability issues. We're now getting a lovely long list of really inspiring books and programs. What would yours be?
Samantha: Do you know I've thought about this, Amanda. Then I realised that the reason I didn't have any inspiration is because I'm six months pregnant and I have a 15-month-old daughter, and I don't think I've read anything or watched anything of substance over the more recent years. When I think of things that have inspired me, it really does go back to or one of my favourite programmes as we mentioned at the beginning as The West Wing, which I go back to time and again and I think what's so important to me about or what I learned from watching that program and it's the environment we live in at the moment where there's so much anger and expectation about what governments should do and whose responsibility it is.
I think when I always wonder when people are criticizing what people are achieving or able to get done and think, "Well, why don't you go and try and change it yourself?" I just think what that program explores particularly well is the good people with good intentions that there's just a limit when you have to get consensus bill about how you can make change happen and to be understanding, but also around the complexity of issues as well. We've seen this recently. We had an inquiry on our emerging market sovereign debt side about debt forgiveness within Africa. Now we've got senior members of our team who have been involved in these types of dialogues for a long time. They're very clear that this is a bad outcome for these countries in the longer term because it excludes them from being able to find, raise money for--
It shuts them out of the market for a considerable period of time. That we've got to be more creative in how we solve this problem. Yet it doesn't stop someone writing that article which is a simplistic view on how to solve a problem which they probably don't know enough or necessarily understand thoroughly enough. I think for me, that program explored many different governmental challenges and that you have to be willing to listen and carefully and try and work with people to come up with the solutions that can help deliver change. I think when we think about responsible investment, I am passionate about how the world does need to change, but I think if we become myopic on singular issues that we can forget that there are other stakeholders to consider and that we can cause a lot of damage if we change things too quickly.
I think we see that at times and it's where we've- the conversation on the just transition has really started kicking in on climate change that we have to think about where if we disinvest from certain companies, certain regions, the level of poverty that could be created as a result of that, for example.
Amanda: I think that's a really interesting perspective. Thank you very much for sharing that. Now we're drawing to the end of our chat today. I think we all agree that we've reached a watershed moment for the responsible investment industry and I'm keen to hear what you think the next five years holds out for fixed-income industry and responsible investment.
Samantha: You'll agree, Amanda, the last three years has been a roller coaster in terms of the progress that's been made. We've gone from niche to mainstream and now we're moving to regulatory in such a short space of time, so progress. I think this actually comes very well off what we've just been talking about. I think progress is fantastic. I worry at the moment that the pace and the expectations mean that, particularly from the regulatory side that we're going to choke off the ESG and the sustainable investment that it's intended to drive. I think we are at this- what's exciting at the moment and this is I think more broadly for issuing investments is that the pace of change and the willingness to change should gradually allow more room for ambition.
Where I do worry is that there needs to be a bit more of an honest conversation about what we as investors can realistically achieve. I think the light has been shone on us in recent years and really quite rightly we should be using our influence to ensure the companies that we invest in are good global corporate citizens. I just worry that there's a lack of understanding. I think we need to do a better job of explaining to the general population that we don't choose how capital gets invested unilaterally. It's investment choices they make in their pensions that then control the decisions that we're allowed to make on their behalf. I think delivering, if we can do a good job of delivering that message then we could massively empower the change that we're capable of making, but that's both exciting and I think the challenge ahead.
Amanda: I think that's a fantastic way to end, almost a call to arms to make sure that our message is shared properly with the wide world. Thank you so much, Sam, for that. It's been an absolute pleasure to have you with us today. Sam has done so much to move the ESG agenda forward and fixed income. Sam, thank you so much for your time.
Samantha: Thank you, Amanda.
Amanda: That ends our discussion for today and thank you to all of those who have taken time to listen to our series. Please do download our previous podcasts, which you can find on our website, watch out for our next episode and tune in. Bye for now.