RI Interview: Candriam’s Naïm Abou-Jaoudé on circular economy, new product pipeline

Candriam Investors Group, the €121bn pan-European fund manager, is launching two new funds soon – a global climate change product and an impact investment fund of funds.

Speaking to Responsible Investor, CEO Naïm Abou-Jaoudé says the climate change product will be an equity product investing in the future leaders of climate change action. The impact investment fund of funds will look to start on €20-30m, says Abou-Jaoudé and increase over time.

The firm is also in the early stages of looking at the circular economy, a topic close to Abou-Jaoudé’s heart.

A recent Candriam sustainability conference highlighted Ellen MacArthur, the famed yachtswoman whose Foundation has done much to promote the idea of a circular economy that aims to redefine growth, focusing on positive society-wide benefits.

It entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system.

“She made a really nice speech on the circular economy and the possibility of preserving our planet by redefining our approach to growth,” says Abou-Jaoudé.

“The circular economy is a very powerful concept which can be used not only to limit our impact, but also to generate a positive one and to solve critical issues like carbon transition.”

Candriam, the former Dexia Asset Management, is owned by listed insurance firm New York Life. It changed its name in 2014 to Candriam, which stands for Conviction and Responsibility In Asset Management.

It has currently developed a range of 15 “pure” SRI funds (equities, bonds, asset allocation, money market) focused on sustainability. At the same time it embeds ESG analysis across most of its assets.

It was a first mover in the SRI/sustainability space, being one of the founding signatories to the PRI in 2006/7. Since then the assets under management of PRI signatories has grown to $81.7trn with a host of mainstream financial players involved.

For example, the world’s largest money manager BlackRock has forecast huge growth for funds following ESG principles, predicting that by 2028 there will be $400bn allocated to ESG funds. At the same time it announced a range of sustainable-focused ETFs.

“We are happy and proud to see that the market is catching up,” says Abou-Jaoudé. “When we issued our first SRI report in 2006, it was six pages and people asked: “Why are you issuing this?”

“But now that more people are going in this direction, the more we are convinced that is the right way to go in term of business and we believe that we have a competitive edge for several reasons.”

One is the proprietary data that Candriam has built up over 20 years on over 3,000 stocks and securities. He says the approach has helped it weather tough times in the financial markets.

“The success that we have had and we are continuing to have in the last five years can be attributed to the extension of our distribution footprint, the performance and innovative aspects of our products and our responsible investment approach. Not to mention the tremendous support of our shareholder, New York Life. Since 2014 our assets have grown by 80%, and 50% of our net new cash came from our responsible investment solutions.“It shows that a responsible asset manager, thinking long-term, in the interest of clients, can go through several headwinds and volatility.

“We had to overcome many obstacles since 2008. Not only because of the market conditions and environment, but also because our own story has been fraught with pitfalls. And we were able to manage them.”

Now, Abou-Jaoudé suggests that impact investment will be the next evolution. The thought is shared by Dutch impact manager Triodos, which recently said “ESG is no longer good enough”. Abou-Jaoudé shares this sentiment.

“We believe that doing SRI as a fund manager is not enough,” he says.

“And we have to go a step further into the quantification of impact we are having on society and the social good that we are having for future generations. This is the philosophy that is already translated by the UN Sustainable Development Goals and that we are already communicating on through our financial reporting and extra-financial reporting.”

Candriam will soon be launching its first impact product – an impact investment fund of funds, one of only a handful globally. Candriam was also one of the first movers in the microfinance space. “In 2001, we took an equity stake in BlueOrchard, the first commercial manager of microfinance debt investments worldwide,” says Abou-Jaoudé, who sits on the board of the company

Swiss-based fund BlueOrchard was founded with support from the UN to provide debt and equity to microfinance institutions in emerging markets. As of 2017, it reports managing net assets of $1.1bn with investments placed in institutions serving 18.7m micro-entrepreneurs.

Candriam’s impact investment fund of funds will look at social inclusion in developed markets, says Abou-Jaoudé. “We believe that social inclusion has to be done in the West and not just in developing countries to have an impact. In France and in the UK it’s roughly the same: 12-14% of the population is living below the living wage.”

The fund of funds will invest in private equity, with fees from the fund being linked to social impact, says Abou-Jaoudé. He says Candriam is currently in discussions with private equity funds about their capacity to invest in projects. And it is talking with pension funds about investing. The target size is small because of the size of the underlying holdings but Abou-Jaoudé says it can have deep social impact. Candriam has developed a propriety tool to measure impact with an independent committee overseeing this.

As reported in RI earlier in the year Candriam has started to donate 10% of revenues from its SRI funds – which it puts at approximately €1m per annum – to projects promoting education around sustainable finance, and to other social impact initiatives.

Candriam also engages on policy such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the EU Action Plan on Sustainable Finance. A year ago it launched the ‘Candriam Academy’, a free course on sustainable finance. Abou-Jaoudé says it is part of its effort to help future development of responsible investment. It is now in talks with a top UK university about a partnership on this.

In September, Candriam decided to divest from coal, tobacco and chemical, biological and white phosphorus weapons.

And it publicly backs NGO shareholder initiatives, like the As You Show Plastic Solutions Investor Alliance engaging with consumer good companies on the threat posed by plastic waste and pollution, and the Follow This resolution at Shell. Candriam publicly announced its intention to the support the resolution calling on Shell to set Paris-aligned climate targets. In the event it was backed by 5.1% of the votes.Alongside climate change, another issue starting to worry CEOs is that of inequality, he says. “I was at an CEO conference with the likes of Warren Buffett and Jamie Dimon and they shared that the biggest threat for them was inequality. That was six months ago, whereas two years ago the topic wasn’t raised.

“These are thought leaders in the financial industry saying that if we don’t work on inequality we will pay a very high price later in terms of economic impact. It was great to see these thought leaders starting to send these messages around.”