The Point

Murray Ackman: Ignore the billionaires – diversity, equity and inclusion are good for investors

US billionaires seem to be picking fights with big brands and civil rights groups over whether corporate diversity, equity and inclusion (DEI) policies are a negative.

Tesla’s Elon Musk, hedge fund manager Bill Ackman and Lululemon founder Chip Wilson have recently criticised DEI as discriminatory or even responsible for aircraft malfunctions.

“DEI must DIE,” said Musk on his X social network. Does he have a point?

It is true that many businesses think about DEI in a flawed way, writes Pendal ESG credit analyst Murray Ackman.

For example, DEI policies often focus on the needs of minority groups, while majorities are not always adequately considered.

“Organisational settings should allow all talent to flourish – including ‘majority talent’,” says Murray.

But there are plenty of studies – including from Pereptual’s Regnan sustainable investing business – suggesting DEI can drive business outperformance. And it is still a good indicator of how well a company is managing risk.

New guidelines warn investors away from ‘nature-negative’ companies

More than half of global GDP depends on natural resources – and these days investors are well aware of biodiversity risk when making portfolio decisions.

Now a group of companies representing sectors exposed to the impact of nature loss is guiding investors away from what they call “nature-negative outcomes” towards “nature-positive outcomes”.

The Australian-backed Taskforce on Nature-related Financial Disclosures is made up of 40 organisations in agribusiness, the blue economy, food and beverage, mining, construction and infrastructure.

Last month, the taskforce issued a set of guidelines which aims to integrate nature into decision-making and give organisations a complete picture of their environmental risks, says Pendal ESG credit analyst Murray Ackman.

“Biodiversity should be considered in managing business risks, and also in terms of system-wide risks,” says Murray. “It can be seen as a proxy for resilience.

“Companies that have an understanding of their biodiversity risk are more likely to have a multi-faceted understanding of all their risks.”

How to use ESG to assess state government bonds

If you’re investing in state government bonds, you’re probably not too worried about default.

But you might be concerned about a potential credit downgrade – which could result in lower demand for a bond and a drop in its value.

Pendal’s income and fixed interest team has a tool to assess the ESG credentials of state governments – which can highlight credit risks that might lead to ratings downgrades.

The index shows how each state is addressing the UN’s Sustainable Development Goals – a list of the world’s biggest problems.

The ACT, Tasmania and SA lead the index, while WA, Queensland and the NT lag, says Pendal ESG credit analyst Murray Ackman.

“People always talk about default,” says Murray. “But that’s not all we’re looking at.

“There would have to be something catastrophic for a state government not being able to service its debt.

“What does have an impact on your investment is credit downgrades.”

What Sun Cable’s collapse means for renewable investing

What does the collapse of the ambitious Sun Cable solar project say about investing in renewables?

Backed by Atlassian’s Mike Cannon-Brookes and Fortescue’s Andrew Forrest, Sun Cable had grand plans to supply electricity to Singapore from a vast solar array in the Northern Territory.

But the pair disagreed over the method of export – undersea cable versus green hydrogen and ammonia – and the venture is now in voluntary administration.

“The main takeaway is that Sun Cable collapsed over a dispute about exporting – not over the idea of a huge solar array in the NT,” says Pendal ESG credit analyst Murray Ackman.

But it raises questions about a potential Australian energy export industry and the role of green hydrogen.

“Historically, governments and private entrepreneurs are typically best placed to carry the risk of these types of early-stage innovations,” he says.

“For most investors, it’s too early to be going all in on hydrogen.”