Platinum Asset Management is implementing an environmental, social and governance screen to its investment process, impacting how it views sectors such as coal mining, CEO Andrew Clifford revealed last week.

Clifford said ESG considerations are nothing new to the firm, "because we've always thought the sustainability of businesses as a fundamental part of assessing any investment".

"So, this social license to operate is a new term, but for us that was always obvious, that what companies are doing would be socially acceptable," he said.

His comments came in response to an audience question at last week's Morningstar Individual Investor Conference in Sydney. An attendee posed the question inspired by the event venue the Wesley Conference Centre: "We are in a building named after one of the mighty thought leaders and social reformers of the last 300 years, and yet we haven't heard anything about ethical investment".

Clifford responded: "One of the things we do invest in, which many people would discount on an ESG basis, would be coal. But we most certainly do assess this, and have put in place a formal framework, and we are going to measure that, but it's still early days," Clifford said.

He also discussed controversial stock Facebook, which has been dragged into the ESG debate following the Cambridge Analytica data scandal earlier this year.

Speaking ahead of the mixed third-quarter financial results the social media giant handed down this week, Clifford revealed Facebook is a relatively new holding for Platinum, "having bought it just after the Cambridge Analytica news broke late last year, early this year".

"One of the big issues for big internet names is the sense that 'we're going to get regulated', and there's no doubt that this is going to be a theme for some time.

"However, I think it's accepted that there's a great utility in these social media companies and it's very clear that people are very happy to still advertise," Clifford said.

He largely dismissed concerns about any meaningful impact on Facebook's revenue, having already weathered the introduction of the new GDPR data privacy laws in Europe this May.

"Who is best positioned to deal with all the regulations? It's the large companies that have the resources to throw at it."

"Facebook's revenue is still growing quite nicely, but profits are slower because of all the investment that they have to make. But yes, over the next two to three years, they aren't going to be the fastest growing," Clifford said.

From an Australian perspective, he believes there is something of a "break in the psychology around software and internet names, and people are becoming quite bearish".

"At some point there, that's the opportunity. It's very hard to judge when that comes to an end, and for us, that's why we don't try to, but come back to the individual names," he said.

Clifford said this is what Platinum is now in the midst of: "looking at our companies, and assessing what happens to their company in a worse situation, what happens to their profits, and looking for benchmarks as to when you should be adding to or buying these companies for your portfolio".

Marijuana pot stocks

Pot stocks not likely to be on Platinum's research agenda now or in the immediate future

What about pot stocks?

On the medical marijuana front, it seems unlikely US pot stocks will be added to a Platinum portfolio any time soon – another question posed by a curious event attendee.

Though the question "what do you think of marijuana?" drew some laughter from the audience – as did the Morningstar CEO Jamie Wickham's clarification "from an investment perspective" – Clifford delivered a straight response.

"These are the hot stocks in Canada, particularly now. Strictly from an investment point of view, from what we've seen in the stocks, you just really don't want to go near them, to the extent that we've actually looked at them"

Given it is a craze, he said his team hasn't spent a great deal of time looking at it, "but you'd think, like tobacco and alcohol, it's going to be a good business to be in once you establish your position, if it goes down those lines of full legalisation".

Canada last month became only the second nation globally to legalise the consumption of recreational marijuana, and the first G7 country to do so.

 

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Glenn Freeman is senior editor at Morningstar Australia.

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