Three in Five Podcast

Episode 15: Three ESG investing questions for Randy

Steve sits down with Randy Brown, Chief Investment Officer at Sun Life and Head of Insurance Asset Management at SLC Management, to discuss how he’s approaching sustainable investing while also balancing the various goals of the portfolio.

Steve Peacher: Hi everybody thanks for tuning in to this episode of “Three in Five,” this is Steve Peacher, President of SLC Management and today I’m really pleased to be joined by Randy Brown, who’s Sun Life’s Chief Investment Officer and also a good friend. Randy, thanks for joining.

Randy Brown: Thanks for having me Steve.

Steve Peacher: Today, we want to talk about ESG, which is a hot topic of course, and Randy oversees a big institutional portfolio, the Sun Life general account is over $100 billion U.S. dollars in assets across multiple currencies and geographies. And my first question Randy is as somebody who oversees that portfolio, when you think about ESG goals that you can pursue and opportunities that you can pursue in that general account, what are some of those that relate to our general account?

Randy Brown: Thank you Steve. I think the overarching thing here is that we will want to be part of this solution, but we need to balance the needs of all of our constituents: we have policyholders, we have shareholders, we have employees. But we also have society, and we need to balance the needs of all of those as we look at our investments. So the first is, I really think about a strong defense for the general account, we tend to lend money for a long period of time, tends to be in the form of debt, whether it's public loans or private loans, so one of the most important things is to ensure that the company is there 20, 30, 40 years from now, to repay us. And, of course, while we didn't call it ESG back then, we've been evaluating the long-term prospects for companies, really forever. But now we're really factoring in ESG into that in a big way, because we do think that has a large impact on the long-term viability of companies. Our assets and help us finance solutions to the problems. So that's also important, we want to support companies on their journey. So it's less about where they are today and more about where they're going and so long as they have a path towards a more sustainable future then we want to support them, and so we think that's a really important note. And then last is we want to play offense, so typically as a bond or loan investor you're really looking at getting a coupon and getting your money back, but there are a lot of capabilities, but we want to begin to play offense and that's a little bit new for us.

Steve Peacher: When you think about some of the solutions that you mentioned, you know, the ability to invest in renewable energy, either by owning projects like wind farms or lending against those kinds of projects, do you find that those, the characteristics of those investments are consistent with other goals that you have to me for the general account or sometimes are they in conflict with the other goals that you have to meet with those assets?

Randy Brown: Well, typically they're aligned, so a lot of these projects are long dated and come with a coupon, so we need yield to sustain our annual dividend to our policyholders, etc. Where it's more of a conflict is when they're in the form of equity, because equity is challenging for insurance companies due to the significant capital required to hold equity investments, so that's where you run into a problem and there's a conflict, but generally we're finding ways to increase our non-fixed income relative to our fixed income. They are aligned, in the sense that they're long-term oriented, which is the way we need to invest. If you think of somebody who takes out a policy they may have a 30, 40, 50, 60 year life expectancy, so we need to make sure we have money way out there to repay them. And last I think companies that did not have a robust plan to be more sustainable are going to be in a competitive disadvantage in the long run, so investing in those that do have a good plan, I think, will help us to continue to deliver to our stakeholders.

Steve Peacher: You know there's a lot of enthusiasm about the role that institutional investors like Sun Life can play in furthering the cause of climate change, many investors are thinking about or signing up for organizations like the Net Zero Alliance, but that also come with comes with challenges. So, what are some of the challenges that you find, as you think about ESG commitments and overseeing a large portfolio, like the General Account side?

Randy Brown: Yeah, I would say, first, and this is sort of a big one, is that the technology to get to net zero doesn't exist yet in a in a sensible, scalable, affordable, accessible way, so Kevin Strain our new CEO he really put it to me in a really good way that helps cement this. It's really like saying that we're going to put a woman on Mars by 2050, and the whole world is aligned to make that happen, so we don't know how we're going to do it, but we know that everyone is aligned to make that happen. And when I make the transition from this lack of accessibility today to the guiding principle where we're going it helps frame the problem. Part of the challenges the path, so the expectations of some regulators and activists don't really align, in my view, with what's achievable by certain dates. So I think they are overly ambitious in terms of what to achievable in a way that we think makes sense, so the challenge really for me is hitting the interim targets without divesting in companies that will actually get there on their own, but later. Because we really don't believe in divestment, that's just moving paper from left hand to right hand, but rather we really focus Steve on engagement, we think that's really important. I guess lastly, big issue is reporting so there's a big push to report what is your, for instance, your carbon footprint today. But, as it turns out, we really only have reliable data, probably on less than 20% of our portfolio today. And the path to get that accurate data, it will happen, but it's not going to happen in the next you know 12 months or even 24 months, it's going to take time to get there to be able to have the starting point to create the path forward. So those are some of the challenges, but again it's something if you take that step back and say we'll get there 2050 on one hand it’s a long time, on another hand it'll be here before we know it, so you have to start the journey.

Steve Peacher: One more personal question Randy that actually I think relates to our topic at hand, and that is Sun Life’s lucky, because you oversee the general account and how it's pursuing ESG goals, but at the same time you've been committed to sustainability personally for a long time, and I know you're very active in an organization called “Rare.” So could you give us just one or two comments about what Rare is all about?

Randy Brown: Yeah thanks for asking, Steve, because Rare is something that's very important to me. So for those of you listening, rare.org. it's a charity that's really focused on helping people and the climate succeed. And we've started on sustainable fisheries in places that are underserved where people depend on near shore fishing for both their protein and their livelihood and they're killing, overfishing and therefore also damaging the ocean, but also damaging the ability for their children and grandchildren. So we have a scalable provable science-based solution to that problem and that's called “Fish Forever.” But additionally we're doing something called “Make it Personal,” and that is we've identified seven behaviors that if each person did, if 10% of Americans did these we could hit our climate goals, so, for instance buy EV, eat one less portion of meat, fly one less time per month, those sorts of things that are achievable but will help us hit our goal, because most people believe that climate change is real and most people believe that there's nothing they can do about it personally, which is in fact not the case.

Steve Peacher: Well, thanks Randy I think this is our third “Three in Five” podcast focused on the ESG, I think this is going to be a topic we continue to talk a lot about over the coming months and even years. Thanks everyone for listening in to this episode of “Three in Five”.

Randy Brown: Thank you, Steve.

This podcast is intended for institutional investors. The information in this podcast is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained in this podcast. This podcast may present materials or statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. As such, do not place undue reliance upon such forward-looking statements. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility.