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Putnam’s Collins Draws On Nature For ESG Investing Inspiration

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After 18 years working at one of the world’s biggest investment managers, Katherine Collins decided she wanted to reconnect investors to the real world.

Collins, who had served as both a portfolio manager and director of research, thought the primary role of investing had been lost. Finance overshadowed investing. Securitizations and algorithmic high-frequency trading had become a greater focus. Efforts to contain risk by breaking it into pieces magnified its dangers.

Charting a new direction, Collins enrolled at Harvard Divinity School and completed her master’s degree in 2011. She studied biomimicry – the idea of looking to nature to solve complex problems.

Collins founded Honeybee Capital Foundation on the belief that investing is both art and science, and she wrote a book on the subject: “The Nature of Investing, Resilient Investment Strategies through Biomimicry.”

“I took a deep dive into the roots of sustainability. I even studied biology,” Collins said.

Watching honeybees teaches us how to be better investors, Collins writes in her book. She credits the work of Cornell University honeybee researcher Thomas Seeley for helping her develop a new perspective.

“Bees do not hole up in a little honeybee conference room and bust out PowerPoint presentations,” Collins said. Just like good investors, “bees gather data, they share information and they reiterate this process until the information is complete and compelling,” she added.

In 2017, Collins brought these concepts to Putnam Investments as the company’s first head of sustainable investing.

Collins developed a sustainable investing model that could be used across Putnam’s family of funds. She repositioned two existing funds, giving them an ESG focus. Today, Collins and Stephanie Dobson co-manage the $6 billion Putnam Sustainable Leaders (PNOYX) and the $474.1 million Putnam Sustainable Future (PMVYX). Both funds also have ETF versions traded on the New York Stock Exchange.

“A lot of folks in sustainability only focus on the risk-oriented side and sustainability,” Collins said. “But whenever there is a risk, there’s also an opportunity. There is either an opportunity to manage that risk better or create a solution that goes beyond that risk and really adds to the business.”

Big-cap growth stocks such as Apple, Bank of America, Microsoft and Amazon populate the larger Putnam Sustainable Leaders fund, which weighted is toward technology, consumer cyclicals and health care. Sustainable Leaders’ 3-year annualized total return was 19.64% while the smaller Sustainable Future fund returned 16.11%, according to Morningstar.

What is different about Collins’ approach is the lens used to identify stocks. “We are looking for real leadership and where sustainability is making the company a better company over time,” she said.

In the case of Apple, Collins said the company is a leader in data stewardship and protecting customers’ privacy. Apple encourages customers to recycle iPhones and within the next several years, Apple plans to use 100% recycled materials in its products.

“The idea is they are not going to be taking anything more out of the earth, yet they are going to continue to grow. This is provocative,” Collins said.

Another Collins pick is Bank of America, which Collins said is ahead of its peers in reputation management and credit risk. “They were among the first companies to do pay equity, they are among the first to commit to more transparency and disclosures about their own team, and they are improving diversity over time,” Collins said.

Collins expects that interest in sustainable investing will continue to grow. Firms have been working to meet the demand and money has been pouring into investments with a sustainability focus.

The Forum for Sustainable and Responsible Investment found that one-third of the assets under professional management are currently invested using sustainable investing strategies, a figure that totaled $17.1 trillion in 2020, up 42% from the $12 trillion invested in 2018.

Despite strong interest in sustainable investing, Collins noted that “there is a real mismatch between what advisors perceive their clients want and what clients say they want.”

A wide majority (79%) of individual investors said they are interested in sustainable investments, according to a study complied by The Morgan Stanley Institute for Sustainable Investing.

Interest was the highest among millennials (99%), individuals who were born between 1981 and 1996 and are entering their peak earning and investing years, the study said.

“There is an amazing opportunity for an advisor to connect the dots and be a little more proactive,” Collins said. “If you are an advisor this is an area of interest and a way to connect and grow your client base.”

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