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Investing in Columbian oil may be more ethical than Facebook shares

by Lewis Panther | 08 Aug 2019

Is investing in a Columbian oil pipeline more or less ethical than making money on Facebook shares? 

That’s the intriguing perspective of a panelist who will be speaking at FINSIA’s signature event of the year - Summit 2019. 

But Dr Kingsley Jones, who will be part of the panel on Investing in the Future, is happy with his judgment after weighing up all the pros and cons about the businesses approach to sustainability. 

It’s a nuanced approach that is at the heart of the philosophy of the firm he founded, named after Victorian-era sometime Sydney resident polymath William Stanley Jevons 

As he explained to InFinance, a great deal of patient analysis - weighing profitability against sustainability - takes place before plumping for stock options.

He said: “These days, sustainability also means a lot of other things to do with environment or social governance and inclusion.

“My perspective is a bit nuanced. 

“When I look at the economy, maybe this comes back to what I know about Jevons and his paradox.” 

The Jevons paradox occurs when technological progress increases efficiency with which resources are used, but the rate of consumption of that resource rises due to increasing demand.

He went on: “The economy, to me as an investor, I view as a whole. 

“Put it this way, if you stopped reducing oil and gas overnight, then you'd concern cause serious problems to the economy. 

“But if you don't reduce the carbon going into the atmosphere over the long run, then you'll certainly have disastrous results from climate change. 

“There's this happy medium to try and navigate. That, I think is the really difficult question for investors.”

The former Macquarie fund manager who set up his Sydney based boutique investment advisory firm uses the kind of case study analysis that gives away his initial training as a scientist.

“To give an example of the way we look at it, in our portfolio we actually own a Columbian heavy oil producer,” he explained.

“They're not without a lot of issues, right? The pipelines are under constant threat.

“If you're looking at this as an investment, if you're looking through the lens of sustainability, there's a lot of issues and problems. 

“But we chose that particular investment because it made sense. Columbia needs robust laws and foreign exchange revenue in the economy.

“And the business is actually making progress, in terms of improving quality in a way that is probably unrecognisable to what the country went through during the time of Pablo Escobar.”

Going on to put his case against Facebook, Dr Jones added: “Like many investors, we own a bunch of technology stock. 

“But we're among those investors who get a bit concerned about how the free-wheeling range of platform technologies is now starting to undermine different aspects of social cohesion.”

The Mark Zuckerberg-founded site is coming under increasing from governments after a serious of damaging scandals over privacy and fake news.

Whether Dr Jones saw this coming or not, he did say: “We haven't owned Facebook for some time. We sold it at the beginning of last year.

“We don't doubt that investors who buy it today will probably make money tomorrow, but it doesn't meet our criteria.

"Could the world really do without social media? Will it survive. It probably could, to be honest.

“We think the management of the Columbian heavy oil is dedicated to cleaning it up. 

“It sums up our attitude to things like ESG and sustainability, where you have this paradoxical situation. We’ve invested in a Columbian heavy oil company but are squeamish about investing in Facebook. The reason it comes down to judgment.”

The founder of Jevons Global advises investors who have between $200 and $800m assets under management went on to talk about the need for a long term approach to judgment.

Pumping money into water utilities in the US might not sound like an obvious place to look for a good ROI.

But, as he explains: “The US has a big problem with water utilities that used to be in the control of, frankly, impoverished local government.

“They are now being turned over to private industries to clean them up, and then the quality of the product. 

“That's turning out to be a reasonably popular business, to allocate capital to. 

“In the past, going back 20 years, I wouldn't have considered that to be an area where I would be doing a significant amount of analysis, and I wouldn't have regarded it as something that required a lot of judgment.

“But when it comes to clean running water, obviously people need it. That makes sense.

"Investors have to spot that, and choose what they think is better - in terms of not only the evaluation, but their role socially. 

“In that sense, you'll begin to understand, I have zero doubt that Facebook's going to make a ton of money, but it's not my cup of tea. 

“Whereas I know American Waterworks is run by some people who are pretty dedicated to going into a local community, doing a deal with the government to supply the right to manage the water - then doing what they need to do to fix it up by fixing the stock. I'm actually quite happy with that.”

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