There is a big push at the moment for investing for good. Not just ethical investing, where you try not to invest in bad things, but rather only investing in good things. Being responsible and sustainable is hard, the CMA has reported that 40% of green claims companies make on their websites are not true which means that your ESG investments may not be as green as you think. In this interview, I talk to Duncan Grierson, the CEO of Clim8 about how the app he founded makes a real difference to investing in Climate Change as opposed to just ticking boxes.
What was the incentive for founding Clim8?
This was a product that I wanted myself.
I thought there was a need in the market, and a gap in the market for a digital platform that is focused purely on investing into listed companies that are making a difference on climate change.
If you look at the generalist platforms, which I describe as Spotify-like, or you look at the robo advisors, none of them are offering a climate-focused product. And this is not a niche, it’s actually a very big area. There are a large number of stocks that have a product or service that is having an impact on climate change.
I have spent the last 20 years in sustainability, so I’m coming at this issue, of trying to have an impact on climate change, from a different mindset than that of a wealth manager or another digital platform.
I thought there was a real opportunity to build something exciting, interesting and engaging for investors who wanted to have most of their money still with a Hargreaves Lansdown or an Interactive Investor but wanted to be comfortable that at least some of their money was going into a portfolio of stocks that are having an impact on climate change.
I would suggest that the vast majority of fund managers out there are still in the ESG bucket, which is far from perfect. It’s a start in the right direction but it’s not doing what we need to be doing, to have a real impact. We need to be putting our money into stuff that’s making a difference on this massive problem, and that’s not the case with ESG filtering. Many funds just use ESG as a marketing hook. It’s a filtration tool but in the end, a lot of those funds have big tech in their portfolios. Most of them have Microsoft, Google, Alphabet, Spotify, Facebook and Netflix, and those are all great stocks and have done very well for you, but if you thought you’re putting your money into a portfolio of companies that are having an impact, you’ll be sadly disappointed.
Another part of is transparency. Another reason I wanted to build this platform was to provide greater transparency on where your money is actually going when you invest.
So how does one actually invest with Clim8? How does it differ from a traditional investment platform where you can pick your stocks?
I would say we’re probably closer to a fund manager than a platform. With a platform like a Hargreaves, you’ll be able to access thousands of stocks, thousands of different funds, and put together your own portfolio. Whereas we are providing essentially three portfolios with different risk profiles.
We provide a curated portfolio, which is full of stocks, companies that are listed, globally listed. There’s over 400 stocks in each portfolio, so it’s highly diversified, and that’s a mixture of direct stocks and some specialist funds and some fixed income. It’s a mixture of equity and fixed income, very diversified, risk adjusted. Our Chief Investment Officer has built the portfolio with our Investment Director and they each have 20-30 years’ experience in the capital markets.
I would suggest it is a relatively low-risk portfolio and it’s done incredibly well. In the last 12 months at the highest end of risk, which is the Adventurous portfolio, this has had a 23.4% return. Our Balanced portfolio, in the middle, has made a 16.8% return. And our, Cautious, most conservative portfolio has made a 7.8% return.
Each portfolio’s done very well in the last 12 months, and that has not been by buying Facebook and Netflix or Spotify which have done well because we’re all working from home more; digital generally has done incredibly well.
Instead we are putting our investors’ money into six main themes, which is clean energy, clean tech, smart mobility, sustainable food, clean water and recycling. Those are our six main themes, with a particular focus on clean energy and clean tech. Those two I would say are our two biggest themes, and they’ve done incredibly well in the last 12 months.
So we are not a platform as such; we’re closer to a fund manager, digitally enabled and focused on picking stocks with a climate change impact. We’re not expecting you to move all of your wealth to us but you might want to think about moving your ISA to us, or one of your ISAs to us, if you think you want to be making investments in climate change and be sure that you’re going with a specialist, rather than more generalist ESG type portfolio.
How long have you been going so far?
We starting working on the idea two years ago and we launched two months ago, it takes a lot of investment to build software, we have 10 software engineers. So we’re live. We will be in the app stores later in February. We have over 14,000 people on a waiting list and we’ve been onboarding them over the last couple of months. We gave them exclusive early access. We’ve taken some feedback from them, which is very useful for improving the product.
We have a fast onboarding process. We go through a KYC, AML and suitability. It’s all highly automated, highly digitised.
We’re not expecting to take all of an investor’s ISA portfolio, but if you want to sleep well at night knowing that some of your portfolio is genuinely going into companies that are having a positive impact on climate change and not ESG…
How does ESG investing differ from impact investing?
To be absolutely clear, we’re not ESG. ESG is just a filter. At one end of the spectrum, you have fossil fuel companies, who are the ultimate emitters of carbon. At the other end, you have companies that have a product that is reducing climate change, a solar or a wind company, for example.
ESG fund managers are somewhere in the middle. They’re filtering out the bad stuff, so they’re filtering out fossil fuels and tobacco and weapons and other nasties. But then on many of them, you end up with a portfolio that is just bigtech like Amazon.
We’re at the other end. So we’re filtering IN companies that are making a difference. It’s a very different thing and there is no other digital platform doing what we’re doing.
Do investors have to invest through your app or can they buy them through other investment platforms?
We do have plans for that. In the future, we will offer our own funds. So we will have our own listed fund at some point. Branded as Clim8 with a similar or same portfolio to what we offer through the app. That’s part of the roadmap, but you’ve got to start somewhere and so we are starting with this pure digital offering.
What’s been the best part over the last two years?
I would say the best part has probably been building the team. I think we’ve built a fantastic team.
We’re now 21 people, which is big team for startup. We’ve raised £5 million in funding, including from a venture capital fund backed by the British Business Bank, and some ex-McKinsey partners. Building the team and the culture go hand in hand. We’ve hired some fantastic people and I’ve been trying to pull in people who are not only very good at what they do but also believe in the mission that we can have an impact with our money.
Your savings, your pension, that’s how you can really have an impact on this problem of climate change.
The other all-time favourite is our portfolio performance. Our portfolio’s been incredibly successful, so that’s a bit of a highlight as well. The last 12 months, our Adventurous portfolio has made a 23.4% return, which is incredible.
So you don’t think people need to sacrifice sustainability for performance?
That’s a message that we’re keen to get out and you’re spot on. I come from the world of sustainability and there’s always been a feeling that you’ve got to take second best by using a recycled product, for example, that “green” is less good. But actually, what we’re finding now, certainly in the investment space, is you can have as good, if not better returns, if you’re putting your money into companies that are making a difference on climate change. It’s kind of obvious because that’s the trend, and I think it’s been accelerated by Covid, that people are much more interested in these products and services from these companies.
An example is plant-based burgers; there’s some companies that are doing incredibly well as we move towards eating less meat. Of course, not everybody’s going to become a vegan, but there’s definitely a trend that way. Those companies have done really well as consumers buy into them, and therefore, if you’re an investor in those companies that are listed doing that, you’re obviously going to do pretty well.
The same with solar and wind companies, such as supply chain companies like Vestas, part of our portfolio, who make wind turbines. They’ve done incredibly well and they seem likely to continue to do well as we move more and more towards renewable energy.
I think it’s a myth that you need to give up returns to do good, and I think our portfolio over the last 12 months has proven that.
And what about the worst part? What’s been the most challenging part of running Clim8?
I would say the biggest challenge is speed of build. We have 10 in-house software engineers, so that’s a pretty big software team for an early stage startup, and they’re fantastic. But the speed of build, I would’ve liked to have gone a bit faster. We have ten engineers, we have five people in product design, with product managers who are helping to design the user experience. So we have 15 people who’ve been building this product, the app, and I would’ve liked to have gone a bit faster. I guess that’s a sort of back-handed way of congratulating myself on the team, but I would’ve liked to have gone a bit faster.
You need to offer a good product. We’re FCA-regulated. You have to do certain things. You have to make sure the suitability test is appropriate for your users, and so getting all of that right is very important.
That’s the first thing that comes to mind over the last 12 months. It’s all gone pretty well apart from that.
How many users are you expecting when you go live?
We’re expecting to have 30,000-40,000 by the end of the year, and we’ll see how much they put with us. But we have already had some of our users move some of their old £20k to £50k ISAs to us and that’s encouraging. Beginning to trust that we can make an impact with their money and giving them a good return.
Do you have a favourite book recommendation?
On the investing side, I have read so many books over the years, but I’ve just read a very good book by Alice Ross of the Financial Times called Investing to Save the Planet. It was released about a month ago and its excellent. If people want to invest some of their money to have an impact on climate change, they should read that book. She writes well. It’s authoritative but it also explains things in fairly simple terms as well. That’s a good read.
What would your one bit of investment advice be to help people make more of their money whilst investing in climate change?
I would suggest digging a bit deeper than what a fund might say on the cover or in the name of the fund.
There are a number of funds that have the word sustainable or ethical or responsible in the name, and actually, if you dig into what they’re offering, they’re not necessarily green in the sense that their portfolio is not necessarily full of companies having an impact on climate change. They might’ve passed some ESG filter but they would not necessarily be what you’d want them to be, to the average investor.
I would suggest try to look further into what is in the portfolio of the fund that has one of those words in the label. That would be general advice. And of course, come and check out what we’re doing at Clim8 because we absolutely do go the extra mile.
Duncan Grierson is CEO & founder of Clim8 Invest an App that allows people to invest in Climate Change
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.