Matt Patsky is CEO of Trillium Asset Management. Trillium offers investment strategies and services that seek to advance humankind toward a globally sustainable economy, a just society and a better world. For 40 years, the firm has been at the forefront of ESG thought leadership and draws from decades of experience focused exclusively on responsible investing.
Russ Prince: Can you tell us a little about Trillium Asset Management?
Matt Patsky: Trillium Asset Management was founded in 1982 as Franklin Research & Investment by the visionary Joan Bavaria, known as the “Founding Mother of ESG Investing.” Joan sought to provide a means by which clients could put their dollars where their values lay.
I became CEO in 2009 and today we manage over $5 billion in various impact-driven strategies and funds. Headquartered in Boston, we have satellite offices in San Francisco, Portland, and most recently Edinburgh, where Trillium UK was established in early 2021. In the summer of 2020, Trillium became a wholly owned subsidiary of Australian financial services giant Perpetual Limited. Equipped with the global reach of Perpetual’s sales and distribution network, Trillium is growing rapidly in terms of personnel, assets under management and global market exposure.
Prince: What is your approach to ESG investing?
Patsky: A core tenet of Trillium’s investment philosophy is our belief that a company’s commitment to implementing ESG principles creates a distinct competitive advantage and builds long-term value. Our analysts simultaneously review traditional financial metrics as well as ESG metrics that we believe add value to the investment process.
There are four pillars of Trillium’s approach to sustainable investing:
First, we identify strategic leaders via fundamental bottom-up selection; companies that innovate competitive advantages and whose long-term strategy is aligned with the needs of stakeholders.
Second, we evaluate the financial integrity of said companies by examining their financial statements to ensure that they have strong fundamentals and cash flow, are growth-focused and are reasonably valued.
Third, our analysts assess companies’ ESG integrity—informed by our 40-year track record of proprietary data and insights—by reviewing industry-specific and materiality-based benchmarks, external and independent information sources, and in-depth peer and competitive analysis. We evaluate companies to determine those meeting positive thresholds of performance on ESG issues. This review, known as ESG integration, is the primary focus of Trillium’s ESG research.
Positive environmental characteristics include limiting harmful pollutants, responsible raw material management and utilizing renewable energy sources, to name a few. Social qualities include paying employees a fair wage, deploying a robust human capital management strategy, operating an ethical supply chain, and supporting DEI and LGBTQ initiatives. Governance qualities we seek include board diversity, reasonable executive compensation, separation of the chairman and CEO roles, and a dedication to corporate transparency. Conversely, Trillium also employs strict exclusionary screens for negative ESG and SRI attributes, and we do not invest in companies with significant involvement in producing, marketing, or distributing firearms, tobacco, gambling, pornography, or military weapons systems.
Finally, our sustainable approach doesn’t end after investing in a company. Instead, we engage in active ownership of securities and our Advocacy department conducts issue area and company-specific analysis to engage with companies to promote positive ESG changes and to improve returns.
Prince: What are the biggest factors impacting ESG and how can investors make sure their money is being put to work affecting positive change?
Patsky: As ESG investing explodes in popularity worldwide, investors ought to be wary of so-called “greenwashing.” Attempting to capitalize on the growing phenomenon of investors seeking to align their portfolios with their personal values, some firms have launched investment products claiming to factor in ESG or social impact metrics, but whose holdings ultimately reflect none of the rigorous criteria set forth herein.
Greenwashed investment products may even outright mislead investors, such as a “fossil fuel reserves-free” ETF which in fact has considerable exposure to fossil fuel holdings. I have estimated that of the reported $35 trillion currently allocated to sustainable investments worldwide, just $1 trillion is bona fide “real” ESG investment. A money manager may slap the “ESG consideration” label on a given fund and market it as sustainable, but this does not mean they are actually investing in different companies than they otherwise would.
An estimated $25 trillion of the aforementioned $35 trillion of global sustainable investments uses ESG consideration, which should not even be called ESG, as it does not thoroughly integrate sustainable investment into a strategy. Moreover, passive ownership is insufficiently impactful when compared to the active stakeholder advocacy which Trillium conducts, such as filing shareholder resolutions to pressure companies to change their practices.
There are new industry regulations on the horizon, including SFDR in Europe, which will hopefully help crackdown on greenwashed financial products. Until then, investors should ask money managers about the specifics of their ESG integration and look through to the underlining portfolio—companies that made it through their process—to ensure that the fund/strategy’s goals align with their own values. If you are looking to invest in ESG leaders and your financial advisor tries to sell you a fund that invests in Exxon Mobil and Chevron, for instance, you should understand that the methodology must be terribly flawed. Find a new financial advisor. It is your money. Take the time to understand where it is invested and what impact it is having. Asset managers who are truly dedicated to effecting global change in alignment with your values are out there.
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