26: MFS's Mike Cantara - ESG, Screening and Sin Stocks

[i3] Institutional Investment Podcast

MarketFox columnist Daniel Grioli sits down with Mike Cantara, Senior Managing Director, Global Client Group, at MFS Investment Management to talk about Environmental, Social and Corporate Governance (ESG) issues. Mike emphasises the importance of striking the right balance: "Companies that pay attention to material issues add value over time, but companies that pay attention to immaterial issues detract." Daniel asks a few of his trademark devil's advocate questions too. Mike Cantara podcast overview: 2:25 30 years ago non-US investing was quite novel in America. 3:30 I thought about becoming a priest first 7:30 When did sustainability become more explicit in your investment process? 10:00 Observations on clients’ journey in ESG 12:00 There are too many powerful trends to deny benefits of ESG 13:30 What changes have you seen in companies in sustainability? Lots of glossy brochures. 15:00 There is a lot of great data, but we need a framework to compare apple to apple. 17:30 Companies that pay attention to material issues add value over time, but companies that pay attention to immaterial issues detract. Companies should not be all things to all people. 18:30 Millenials and women will be driving force behind ESG investing. 20:30 Can technology play a role in people opting in or out of sustainable strategies? 22:00 ESG integration allows us to start off with an unrestricted universe. 24:00 The trend towards intangible assets is consistent with focus on ESG; they are long term, they are meaningful, but you can’t necessarily point to it on an income statement. 27:40 How does ESG translate into a stock call? 29:00 Negative ESG assessment can lead to higher discount rate and hence a lower valuation. 32:30 You can call it ESG, or you can call it something else; just don’t ignore it. 33:45 Playing devil’s advocate: asking the sceptics questions 36:30 ESG is not just about screening; there are opportunities here as well 40:00 What about sin stocks? They perform well. 47:00 Where do you draw the line? 48:00 The case of Boeing 51:30 The ESG of Tesla: E? Tick, S? Not so much. 54:00 Can you put a number on the impact of ESG on portfolios? 56:45 What were some of the harder lessons you learned as an investor? 58:55 Tip for good investing: write down why you own a stock and revisit this from time to time