The second installment in our new podcast. Matt Goodburn speaks to Suzanne Hutchins, team leader of the Real Return team.

How will Covid-19 shape the post-pandemic investment landscape?

In the first episode in a new series of podcasts, Matt Goodburn speaks to Suzanne Hutchins, team leader of the Real Return team, Curt Custard, chief investment officer, and Andrew Parry, head of sustainable investment.


Harnessing BNY Mellon’s employee resource groups
As an investment boutique of BNY Mellon, we are able to offer all our employees access to a wide range of global employee networks formed around shared characteristics such as race, ethnicity, gender, generation, disability, military service and sexual orientation. These groups offer opportunities for personal development, skill-building and networking outside employees’ daily responsibilities.

Addressing the gender pay gap
Our gender pay gap report has helped us understand more about the gender-specific challenges we face, namely that we have more men than women in senior roles. As signatories to the UK HM Treasury’s Women in Finance Charter, we are committed not only to ensuring we attract more talented female professionals to our industry, but also to making sure that they stay in our industry and maximise their career opportunities. Bringing about such balance will take time, and the initiatives we discuss here will help to do this.

We recognise gender is certainly not the only type of diversity which we need to focus on, and we are currently exploring how we can better measure other forms of diversity within our workforce and ensure we are fostering an environment which is truly diverse.

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Industry collaboration and speaking up
We recognise gender is certainly not the only type of diversity which we need to focus on, and we are currently exploring how we can better measure other forms of diversity within our workforce and ensure we are fostering an environment which is truly diverse.
  • Initiated by our CEO Hanneke Smits, we have been leading a collaborative initiative with our peers which is looking to address one of the key challenges for the asset management industry in building a diverse workforce, namely the loss of performance continuity through a leave of absence. With the industry so focused on ‘star’ portfolio managers and performance track records, there can be challenges for individuals taking time out from their role to bring up children or care for family members. We look forward to sharing our findings and recommendations with a broader audience shortly.
  • We are founding members of the 30% Club, a global initiative to promote more women on boards.
  • Our responsible investment team seeks to engage with our investee companies on diversity, and where necessary use our votes at annual general meetings to push for change.
  • Our CEO Hanneke Smits is also a founder of Level 20, an initiative which aims to encourage diversity in private equity. In addition, Hanneke is the chair of Impetus, a non-profit organization supporting more than 20 UK-based charities which aim to transform the lives of disadvantaged 11-24 year olds by providing them with the tools they need to succeed in work, school and life.

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Palm oil is ubiquitous in modern society. As a vital ingredient in a range of products from shampoo to peanut butter, it’s highly likely you’ve already used palm oil at least a couple of times before breakfast.

Ever since supermarket Iceland’s banned television ad damning the mass production of palm oil went viral, palm oil has gone from an unknown ingredient to an orangutan-killing villain in the eyes of many. Consumers and environmental groups are now putting pressure on companies to ensure their palm oil is farmed sustainably, with the more extreme even suggesting a ban on the oil entirely.

However, whenever anything becomes a popular movement, it’s important to look beyond the social media outrage and get the facts. As part of our ongoing research and engagement, we want to share an investor’s perspective on palm oil and sustainability.

What eaxctly is palm oil?

Palm oil is an edible vegetable oil that is produced by either squeezing the stone inside the fruit grown on the oil palm tree, or by squeezing the fleshy fruit itself. It is currently the most produced and used vegetable oil, with the average person consuming 8kg per year – a considerable amount when you consider the tiny quantities it is usually used in.

It has a number of characteristics which have led to current high levels of use, not only in food, but also in cosmetics, personal-care products, animal feed and even as a fuel. Widespread adoption of palm oil began some decades ago, when palm oil was seen as a healthier alternative to saturated fat in butter and trans fats in margarine. It is also the cheapest vegetable oil to produce in the world, providing a third of the world’s vegetable oil from only 10% of the land used for oil crops, making it in theory the most environmentally friendly oil we can produce. It is even more desirable as an ingredient given that palm oil has no smell, is a natural preservative, is semi-solid at room temperature (which is useful for spreads) but is still stable at high temperatures.

Source: WWF, March 2019

What are the environmental, social and governance issues?

The primary concerns around palm-oil farming lie in deforestation and the carbon-dioxide (CO2) emissions which occur as a result of peat drainage. In order to make the land suitable for farming palm oil, the peatland must be drained, which releases an enormous amount of trapped CO2 into the atmosphere (around 5% of global human-derived CO2 emissions – more than air travel!) and is likely to contribute significantly to climate change.[1]

Deforestation also leads to a loss of biodiversity, and it’s not just the orangutans of the now infamous Iceland ad that are at risk, but tigers, elephants and numerous other species too. Between 1990 and 2015, 24 million hectares of Indonesian rainforest were destroyed, with palm oil being one of the main drivers of deforestation. With only 15% of native animal species being able to survive the transition from rainforest to plantation, these farming efforts have a profoundly negative effect on wildlife and biodiversity.

There are also concerns around the labour practices used in palm-oil farming, with child labour, forced labour, below-minimum-wage pay and exposure to hazardous pesticides all being major issues.

Can you farm palm oil sustainability?

Given palm oil’s high-yielding nature, which makes it the most environmentally efficient of the vegetable oils, we do not see removing it from products entirely as the answer.

Like many issues of sustainability, the palm-oil debate is a nuanced one. 55% of the world’s palm oil is produced in Indonesia, 30% in Malaysia, 4% in Thailand, and 2% in Colombia, all of which are developing economies. In the tropics, palm-oil production has lifted millions out of poverty and is a cornerstone of the Indonesian economy. There has already been pushback from the Indonesian and Malaysian governments, suggesting that efforts to reduce palm-oil usage will stunt their growing economies. The industrialisation that allowed Western economies to develop is now being demonised, and many developing economies want the right to undergo this process themselves and raise the living standards of their citizens, as the US, UK and other nations have done before them. It is too easy for rich nations to criticise as the emerging world makes use of its rich natural resources in order to develop, while forgetting that we underwent the very same process ourselves.

Source: Roundtable on Sustainable Palm Oil, March 2019

However, it is possible to farm palm oil in a sustainable way that is less destructive to the planet. The Roundtable on Sustainable Palm Oil (RSPO) is a non-profit organisation that aims to unite all stakeholders to develop and implement sustainable palm-oil practices. While earlier iterations of the RSPO were criticised for being too lenient, especially on peat drainage and deforestation, which are the main environmental issues associated with palm oil, a revised set of criteria were released in November 2018 which broadly addressed these concerns, introducing what is known in the industry as a NDPE (no deforestation, no peat, no exploitation) standard.

While we share the view of many non-governmental organisations (NGOs) such as WWF that RSPO could still be more stringent, in light of these new requirements, we now believe that an RSPO-certified company is helping to contribute to the sustainable farming of palm oil, and are pleased that many of the companies we invest in have signed the RSPO.

Nevertheless, we don’t think it’s enough for a company to just use RSPO certification in order to claim it uses sustainable palm oil. As such, we have developed a checklist which we use when analysing a company’s palm-oil policies:

1. Clearly defined goals: A publicly disclosed target date by which to achieve 100% sustainable palm-oil sourcing (or at the very least 100% RSPO-certified palm oil).

2. Ambition over and above RSPO: Implementation of innovative programmes and/or further certifications beyond RSPO activities. Potential further certifications/commitments include a formal 100% no-deforestation commitment, POIG (Palm Oil Innovation Group) membership or formal adoption of official HCS (High Carbon Stock) Approach methodology.

3. An engagement protocol for dealing with non-compliant producers, including time-bound milestones for improvement. Evidence of working with non-compliant producers to improve is preferable to simply dropping them. However, should a producer fail to improve, we would expect a company to cease trading with them.

4. Supply-chain transparency: At a minimum, we want to see efforts to achieve 100% traceability to the mill where the palm oil is processed, with aspirations to bring about transparency to the plantation. Companies should be making their own independent efforts to ensure on-the-ground verification, not relying on certification alone.

5. Active industry collaboration with peers and NGOs to help tackle the broader issues.

6. On-the-ground work with smallholders: Smallholders produce 40% of the world’s palm oil, yet often they do not have the resources or education needed to comply with certification standards, and farming methods used are generally highly inefficient. It is vital large multinationals engage in projects to help smallholders become compliant in order to avoid the emergence of a two-tier market where less scrupulous companies buy cheaper non-certified palm oil.

7. Prepared to reduce palm oil use where appropriate: We do not want companies to replace palm oil with other oils (as palm oil is the most environmentally efficient); however, we look for companies to be exploring innovative solutions to reduce ever-growing palm oil demand.

To conclude, palm oil is not the clear-cut villain many have made it out to be. Like the NGOs working on the ground in areas in which palm oil is produced, we believe it is possible to produce palm oil in a sustainable way that is less damaging to the environment, while also providing safe and well-paid jobs for local communities. Both consumers and investors should be wary of boycotting palm oil or demanding it be replaced with oils which may in fact be more harmful for the environment. Instead, they can look for products made with palm oil that is sustainable-certified, and make sure that they are happy that the definition of ‘sustainable’ is sufficiently rigorous.


Sustainability is a hot topic for investors, but conversations do tend to focus on exclusion. While we understand this impulse, as there are likely to be pronounced negative consequences of investing in an area that a client considers to be at odds with a sustainable focus, we strongly believe that there are many positive opportunities when it comes to sustainable investing that are currently overlooked. At Newton, we use ‘red lines’ to make clear which areas we deem unsuitable for sustainable investment, but we are also constantly discussing which industries and companies could benefit our sustainable strategies. We believe that sustainability is a valuable mindset through which to evaluate opportunities as well as to exclude them.

We are amid a societal shift away from the Friedman theory that profit maximisation should be the sole objective of company management. While it is important to appreciate that, as part of profit maximisation, companies have an implicit social licence to operate (a licence that has to be earned and maintained), we believe that the conversation is evolving. In the past, it has been possible to earn supernormal profits through the exploitation and depletion of natural and human capital, but in the future we believe businesses that rely on an under-pricing of negative external factors will see their profits come under pressure. We also think that this will make space for new companies that can innovate to provide the solutions to these factors. Challenges tend to present opportunities.

Convenience food conflicts

The prevailing consumer trend is for food on the go, with consumers choosing convenience and speed over taking the time to sit down and eat.[1] This change in eating habits has produced an increased requirement for ‘shelf-stable’ foods. However, traditional stabilisers, including salts, fats and sugars, have brought about significant detrimental effects on health, with diabetes now costing the UK’s NHS £14bn per year, which makes up 10% of the national health budget.[2] Governments are now starting to price in these negative influences with a sugar tax, among other initiatives, while many individual consumers are seeking out healthier, whole food products to improve their own health. While this is all sounds positive, research has revealed, understandably, that there remains an unwillingness to compromise on taste, which can be difficult when reducing salt, fat and sugar content considerably. At the same time, consumers and governments are placing pressure on companies to reduce food waste and plastic usage, as agriculture produces one third of global carbon emissions and research suggests that one third of food produced for human consumption is wasted each year.[3]

There are many good intentions around nutrition and waste production, but many of the demands do appear to be conflicting. Plastic is used in part to increase shelf life and reduce waste, but both plastic reduction and waste reduction are consumer and government aims. Similarly, people are looking for food which contains less sugar and fewer artificial preservatives, but which can also be picked up quickly and eaten on the go.

These conflicting aims do present challenges. However, situations like the above offer many value-creation opportunities. We have identified some food-technology companies which are able to address many of the conflicting demands outlined above, which we think are exciting additions to the consumer area. Some of these companies are working on product reformulation to reduce problematic ingredients, which can be most meaningfully achieved through improvements in the industrial processes and the use of cultures and enzymes. One such technology allows products to be shelf-stable in temperatures up to 40 degrees Celsius, which could be of great use in warmer climates.

Another trend within the food industry, which has been enabled by the rise of social-media advertising, is a significant increase in the number of small niche brands taking share from the bigger industry players. Small brands will often outsource most of the research and development (R&D) and focus on sales and marketing. Increasingly, large brands are also outsourcing R&D for new and smaller product lines, meaning that a new product can be launched in just 6 months rather than 2-3 years.

Current environmental challenges and changing consumer preferences clearly present investible opportunities that suit sustainable strategies.

Are electric vehicles the future, whether consumers like it or not?

1Source: European Environment Agency, Jato Dynamics Ltd, Shutterstock, April 2018

As with convenience food and plastic waste, transportation receives a considerable amount of interest as it must be a key part of efforts to reduce emissions. The first chart above shows that across all geographies tough emissions targets have been put in place, while the following charts show Volkswagen’s current fleet emissions and where they need to get to in order to meet regulations in 2020. Much of the discussion about electric vehicles seems to centre on whether consumers want them and whether the infrastructure is in place, which we believe is missing the point as electric vehicles are coming whether consumers think they want them or not. Between 2010 and 2015, Volkswagen fleet emissions were falling at 3.4% per annum, owing to the improvement in internal combustion engine efficiency, while diesel sales were relatively stable.[4] Following the diesel-gate scandal, new diesel sales have dropped significantly in favour of petrol engines, which emit 15-20% more CO2 on average at similar power. The vehicle mix has also had an impact, with sport utility vehicles continuing to grow in popularity despite emitting more CO2 compared to regular cars. Together, both fuel type and mix shift have caused fleet carbon emissions to actually start rising again, neglecting any additional internal combustion engine efficiency gains.

It is now impossible for the major auto makers to meet their fleet emissions targets in 2020 without replacing a decent proportion of sales with electric vehicles. For example, if Volkswagen replaces 10% of its sales with electric vehicles in 2020, it will save approximately €15,000 in fines for every electric vehicle it sells. The incentive to produce electric vehicles and get them into the hands of consumers is therefore very high. Understanding the regulatory dynamics here shows us that certain investments in the electric-vehicle supply chain are likely to see a significant growth in volumes in the near term. We can base our investment analysis on observable data points rather than taking a view on concerns such as consumer preference and range anxiety. Our work on sustainability and climate change indicates that regulation is likely to be unrelenting, which gives us confidence in electric vehicles as a potential area of investment.