Simplicity and Complexity: Striking a Balance in Sustainable Investing
In this episode of the All Angles podcast, Barnaby Wiener, chief sustainability officer at MFS, discusses the changing landscape of sustainability and the challenges and opportunities for investors. He talks about the effect of polarization, how investors should think about impact, and the need to embrace complexity while being wary of simplicity. Barnaby also shares what makes him optimistic about the future.

Vish Hindocha: Welcome to the All Angles Podcast. In this episode, we are delighted to welcome back for a second time Barnaby Wiener. Barnaby is the chief sustainability officer at MFS as well as a portfolio manager on various strategies of your tenured history at MFS, which we covered on the very first episode of the All Angles podcast. So Barnaby, welcome back. Thank you for being here.

Barnaby Wiener: Thank you, Vish. Lovely to be back.

Vish Hindocha: So almost two years ago we started this podcast and you were the first person on. We’re going to refer to some of the things that we talked about then, but I wanted to first ask the question, given so much, it feels like, has changed and the dynamic and the landscape has sort of shifted under our feet as we’ve been navigating through the wonderful world of sustainability. Just curious: How do you see it today? How do you think the landscape has changed? What are some of the things that you think are challenging or opportunities for investors embracing this new mindset?

Barnaby Wiener: I think sometimes when thinking about how the landscape has changed, it’s easy to get confused because really it was always a very complicated landscape and it’s become even more complicated. But I suppose if I sort of pull out a few key strands. I mean obviously one very obvious way the landscape has changed in whatever, it’s just over two years since we’d last spoke, is just the extent to which in the US it’s become so politicized. And that has in many ways been an unwelcome challenge because it’s I think forced many stakeholders in the investment community to sort of some extent rethink or maybe just think a bit more carefully or differently about how they approach this. So it certainly added another layer of complexity.

At the same time, I think one shouldn’t look at it through an entirely negative lens. I think there are many aspects of the politicization which frankly are slightly ridiculous, but I think at its core there is a legitimate question, which is what is the role of investors? What is the role and responsibility of companies, and how should they be evaluated? And I think if we’re honest, there were almost certainly things that were done in the name of sustainability that probably didn’t really make much sense. So to the extent that it’s forced the investment community to rethink and think about its broader responsibilities, then it’s possibly a positive thing.

And I think the other thing that is easy to forget if you’re caught up in the maelstrom is that at ground level, there’s still a lot of positive movement. I mean, if I think about, for example, just taking one issue, how companies are addressing their climate-related risks and thinking about alignment with net zero, I mean as far as I’m aware, there aren’t any companies rolling back on that commitment, and there are many more that have science-based targets now than did two-plus years ago. And if I think about our conversations with companies on how they’re going about addressing it, we’ve learned more. It feels like there’s been progress. I mean, we can debate whether the progress is fast enough to tackle the underlying problem, but there definitely is progress.

So I feel like, as is always the case, you can take a glass half empty or a glass half full view of it, and actually I almost think we have sort of an obligation to take a glass half full. As long as it doesn’t lead to complacency, I think one should not get defeated by the obstacles that get presented from time to time.

Vish Hindocha: I couldn’t agree more. I think the onus is on us in terms of the practitioners in the space. You talked about embracing complexity last time, which I definitely want to come back to, but also embrace the challenge and with some optimism and some hope for how we move through it. And we’ve talked about this a lot, you and I, over the last few years of hope being part of the strategy of how we sort of tackle some of the big problems that we find ourselves faced with. As you said, the picture has been complicated and there’s so many different sort of arenas now that we’re debating: What is the agency? What are the limits and the duties of the agency that investors have?

One of the questions that has been surfacing a few times is how should — if at all — should investors think about impact? And that can be a kind of loaded term, as you said, in different jurisdictions. On our last conversation, we ended up talking a lot about effective altruism and altruistic kind of thinking and how that intersects with the investment mindset. So I wanted to ask, given that this is a topic that keeps coming up, in your view, how should investors think about impact? Should they? And if so, how?

Barnaby Wiener: You’re right, all these terms are so loaded. It feels like that’s a real sort of theme of today, how language has become so much more weaponized frankly than it ever seemed to be 10, 20 years ago. But I guess, how should investors think about impact? Well, it depends on which investors you’re talking about for a start. So let’s say you are a charitable foundation or endowment, whatever, with an explicit social or environmental purpose, then I think it’s entirely legitimate to think very carefully about impact as you make investment decisions. If as a mainstream asset manager like MFS where we don’t have that explicit mandate, which frankly the majority of professional investors are in that category, then clearly we can’t make investment decisions based on impact. Our primary responsibility is to make investment decisions based on what’s in the best long-term financial interests of our clients. So there’s a limit to how impact should weigh on investors’ decision making process depending on the mandate.

But all investors should consider impact think for a few reasons. One is that, ultimately— Let’s firstly unpick what we mean by impact. I mean, I think what we mean by impact is it’s a sort of a loose term to describe what impact companies have on the planet and the community and all the other stakeholders.

Vish Hindocha: Real world, yeah.

Barnaby Wiener: What’s the footprint that company leaves on the world that is unlikely to be directly covered in its sort of financial reporting? And I think it’s a very important question, most importantly, because ultimately a company’s impact may well lead to financial consequences. And I feel quite high conviction that the risk of that is much higher now than it used to be. So 20 years ago, no one was really paying much attention to how companies treated their workforce or their suppliers or what the environmental impact was. Now obviously it is much, much more in focus, and that reflects broader societal concerns about the state of the world, whether it’s of environmental issues or social injustice, and concern also that the corporate world has an important part to play in protecting that.

So it’s going to affect the numbers and therefore as an investor, particularly an investor with an appropriately long time frame, you have to think about it. Ultimately, every company requires a license to operate. And we’ve seen it time again that companies drift onto the wrong side of that line and they get punished. I mean, right now, for example, I mean it’s topical in the UK, but I’m just thinking of the Post Office scandal, where I guess probably some of our audience won’t be so familiar with it not being UK-based, but essentially over a period lasting over 20 years, close to 1000 innocent subpostmasters were wrongly convicted of theft and fraud because of a dodgy accounting software that was supplied to the Post Office by Fujitsu. Now, I’m pretty sure Fujitsu is going to end up occurring a cost for that. And of course whether one would’ve been able to identify 20 years ago that there was an issue there or not, if you were analyzing Fujitsu, almost certainly not. But I think that this sort of reflects society’s intolerance for corporate behavior that is deemed rightly fallen foul.

Vish Hindocha: Yeah, unworthy, yeah.

Barnaby Wiener: So I think that’s the main aspect, but I think there is another aspect to why we should think about impact. And that’s just thinking about the broader ecosystem that we operate in. Because you can have a situation hypothetically where you make an investment and that investment pays handsome dividends so you generate a very attractive return from that investment, but it has consequences for the broader ecosystem that in the long run is going to be detrimental to all investor returns. So I think we shouldn’t be afraid as investors of recognizing that we have a sort of broader obligation to sustain a healthy ecosystem. And I think that’s where sometimes people struggle a bit because that can feel a bit sort of nebulous.

Vish Hindocha: Yeah, or maybe even out of scope, to your point on what is the mandate, then that’s often what gets used is sort of fiduciary duty. So okay, so makes total sense to you, me, us, that it’s in scope because it affects the numbers and because part of the role of the investment market and finance more broadly is to facilitate good asset allocation that is deemed to be fit for long term as well as help our clients and the savers of the world sort of retire with dignity or save for their future. And yet to your point, people are afraid of it or it’s a controversial topic for some reason and it’s become loaded. What do you think are some of the traps that people fall into as to why they think, why has this become such a controversial topic for investors, do you think?

Barnaby Wiener: It’s a profound question really. I almost feel like everything seems to have become more controversial. I feel like we live in a more polarized and sort of... well, more dangerous world in lots of ways, but dangerous in terms of a narrow sense of what you can and can’t say without risk of being sort of attacked from one side or the other. And I say that I think that covers a whole gamut of issues, but particularly here, it feels like on both sides you have unhelpful extremist dogmatic thinking. On the one side, a group saying, “We have a fiduciary obligation to maximize financial returns for investors, and anything to do with sustainability is basically woke left-wing dogma that’s sort of a conspiracy against the end investor.” But then on the other extreme, you have people saying, “No one should invest in an oil company or anything to do with fossil fuels,” which I think is mistaken on so many levels, not least of which is we are still reliant on fossil fuels for about 80% of our total energy. So whilst we’re still using their products, we maybe ought to perhaps think twice before consigning them to the investment jail.

To some extent, I think it reflects the fact that it’s much easier to take a position. I think we are instinctively tribal. It requires much less effort to say, “Okay, I’m with this tribe and I think this and I’m going to hug everyone who thinks the same way as me and shout at everyone who thinks differently. And every data point I get, I’m going to interpret so it fits my position and then I don’t have to sort of really engage my brain because I’m in my slot.” And it’s actually incredibly difficult to listen to an alternative point of view and really engage with it. One reason I think it’s become harder is because I think attention spans just get shorter and shorter, and I do think that technology and social media has a huge part to play in that because we’re increasingly a species that operates in tweets and posts and really struggle to engage thoughtfully on a topic for any length of time.

Vish Hindocha: Definitely. I think for both sides it’s become easier to get into and stay in your echo chamber and more painful to get out. There was a story that was covered in the BBC recently about a person in the US and she grew up in —  I think it was the Midwest — she’d grown up in a community that was extremely sort of — and everyone from her church community and every radio show she listened to was about how climate change was a giant hoax, yet she actually was a trained chemist and just happened to stumble across some literature that sort of made her think differently. And what was really fascinating to me about reading the article, and it was sort of titled How I Changed My Mind and Realized that Climate Change Wasn’t a Hoax, but the immense personal cost that she had to go through in terms of losing her friends and losing her social circle and took unbelievable courage and bravery to change her mind. I’m not saying that necessarily, again without making a political statement of whether that’s right or wrong, but just recognizing that we can sometimes take for granted how easy it might be for people to sort of change that perspective, whether they are on an echo chamber, either to the extreme left or the extreme right, but it can be hard for them because they’re giving up some of those ties.

One thing that we’ve talked about a little bit over the last few months is Charlie Munger and mental models and biases, and we could think about the Post Office scandal as a sunk cost kind of fallacy and a bias to that, which we talked about the other day. As an investor, are there any biases that you think we should be mindful of as we step into this or any lessons that you’ve learned over the last few years that help you sort of rethink and make sure that you are open to contrarian views or to kind of contrary indicators and making sure that you are paying attention to facts, not necessarily in the echo chamber?

Barnaby Wiener: What you just articulated there, the need to listen to and really engage with alternate viewpoints, is absolutely something we should all strive to, and it’s incredibly difficult. So I find it much easier to identify how I should behave than how I actually do. I’ve probably spent most of the last three years in an echo chamber of one sort or another because actually it’s very uncomfortable when you’re with someone you sort of fundamentally disagree with. I can think of plenty of investment biases that I’ve had and colleagues collectively as a group or parts of the group have. And I think one of the problems with investing particularly on this is that it’s important as we disagree to continue to challenge yourself and say, "Am I thinking about this the right way?" But as a long-term investor, it’s also important that you make decisions and stick with them.

And so I think in investing, it’s doubly hard to retain objectivity because there’s a part of you that’s saying, “I’m a long-term investor, so I’ve spent some time thinking about this and I’ve reached this conclusion and therefore I just stick with my guns and not sort of blow with the wind." There’s also another part of you that inevitably is going to be influenced by how the share price is evolving and depending on your instincts, if you are innately contrarian and you want to buy more just because it’s going down and if you are innately sort of trend following, you tend to get nervous when it’s going down. Both areas[HJ(1]  are equally irrelevant, it’s incredibly difficult, and all one can do is keep trying to force oneself to see things from a fresh perspective.

Vish Hindocha: Definitely. I think one of the things that we’ve talked about and you’ve impressed upon me and the organization is that there’s ample room for debate and disagreement, but no room for detachment, which I really love as a sort of part of the North Star of how we think. No one here claims that they have the perfect answer on how any one company, industry, sector or the broad industry at large should be approaching any of the topics that you’ve talked about, whether it’s governance failures or systemic failures or human rights issues, labor issues or climate change. But that collectively, as long as no one detaches from that — and apathy is the sort of killer — then we’re good.

One of the things that you mentioned at the beginning of this conversation and we ended the last conversation on was, when asked what’s the advice that you would have for the listener, was embrace complexity. So I’m really curious, are there examples, you just talked about how difficult it can be to sort of step out of echo chambers, but other examples where you’ve embraced complexity over the last couple of years? Has that changed your views on anything, or has it strengthened and made more resilient your views or any of your principles?

Barnaby Wiener: One of the beauties of the embrace complexity philosophy is it’s another way of saying admit you don’t know. And so in a way, if your starting point is to recognize that an issue is complex and that there are probably no clear answers, only trade-offs, then it’s actually less likely you’re going to find yourself in a position where you actually take a position and then realize your position is wrong. And while it is important to embrace complexity, I’m struck by that at some point you do actually have to sort of make a decision obviously in investing. But also as I think about how we act as an owner and how we engage with our investees, I think we’ve done actually a pretty good job of embracing the complexity there because most of our engagements have been really to a large extent exploratory engagements. In other words, we’re interacting with companies to better understand the topics in question. And I think that’s appropriate, absolutely appropriate. We don’t want to go in pretending we know the answer and we don’t.

At some point, and it is a process, but at some point I think we do need to time to time say, “Well actually, we know enough here to at least take a position.” And we might be humble enough to say, “We may change our mind at some point if the evidence changes.” But I think that possibly the next challenge for us as an organization is to convert that exploratory engagement into perhaps something more tangible. But we can’t do that just for the sake of it. It has got to be a sort of clear and generally held conviction that we need to be asking the company to do something. And we do it.  I mean, I can think of things like on diversity, we’ve been quite explicit with companies about our expectations on percentage of the board that would be from diverse backgrounds, and that’s definitely a very positive and actually generally welcomed position, as in welcomed by the companies. So I’d love to see that develop more as we start to at least develop some conviction that as we wade through this sort of complex landscape we can say we feel strongly enough about this particular topic.

Vish Hindocha: Having some conviction to put a stake in the ground on some area. One of the reasons I brought up the question is in my role. As you know, I’m very privileged to speak to many of our clients around the world as they sort of grapple with how complicated and complex sustainability can be for them as well and their sort of role as fiduciaries for other people’s money as well. And the embrace complexity narrative is one — as you said, I think we’ve done a good job even with clients of exploring why and how even on something that on paper seems really simple, like net zero, given the amount of nationally defined contributions from regulators and governments that are all pointing in that one direction, even how complex something like that can be to actually implement and how you can very quickly end up implementing something that has all sorts of unintended consequences, like the exclusion of fossil fuels, which may actually exacerbate the problem, not solve it.

And one of the things that I’ve been thinking about but not tried on anyone yet — so this is the first time, so you can tell me if this is wrong — is I actually think it’s absolutely right to embrace complexity with the hope of getting to a high-conviction position but almost think that people need —  I’m going to call them — simplicity safe havens as a base from which to do the exploratory work. So in the case of climate, and we could use board diversity or other examples, we know that it’s limiting and it’s not perfect, but it’s really helpful that we’ve got a single currency of CO2e, and everyone sort of now understands what scope one, scope two, and we could argue about scope three, but everyone understands what those terms mean, and they may not be perfect, but that enables people to then step into even more complexity as they start thinking about, what does a just transition mean or what does nature mean or what does it mean to measure this at a sovereign level or a subsovereign level?

So I don’t think we could have as an industry or our clients couldn’t, or maybe we as investors couldn’t embrace that kind of level of complexity if we didn’t have this kind of simplicity safe heaven somewhere in the middle. So I think there’s an onus on — I think there’s an onus on us as well, and maybe specifically my team, to help asset allocators in terms of our clients find where that simplicity might be at least as a foundation of where we are broadly speaking uncontroversial, so that we can continue to move forward. Does that make sense to you or is that...?

Barnaby Wiener: It does make sense. I’m not sure I completely agree. Well, put it this way, I agree with you that people are much more comfortable when they can sort of base things around a simple objective metric. So when it comes to climate, CO2 emissions, as you say, it’s a universal language and it is helpful.

I suppose what I’m slightly nervous about is that these simple metrics become the basis of one’s strategy when actually I think the basis of one’s strategy and approach should be much more of a sort of intangible, almost commonsensical position of, and I’m hesitant to use this term, but what’s the right thing here? What’s the sort of North Star if you’re just thinking about creating a sustainable business? I often think, imagine if we owned companies outright and they were family businesses and we were protecting them for the next 10 generations or whatever, and that was our mentality. I think if you approach everything through that lens, it’s actually fairly obvious that you would think about all these social and environmental externalities.

And my problem with the homing in on metrics is some things are measurable and some aren’t. So let me give you a simple example. Diversity, it’s very easy to measure the number of women on a board. It’s harder to measure ethnic diversity, it’s harder to measure diversity of sexual orientation.

Vish Hindocha: Socioeconomic background.

Barnaby Wiener: Socioeconomic background, of neurodiversity, of just different outlooks. So there are so many different aspects to diversity, and most of them are really hard to measure. And so what happens is we tend to home in on the one that is easily measured. I’m not saying that we shouldn’t do that because may be better to focus on something rather than that, but a board that’s more gender diverse, that’s a good start. And it’s the same, I think, with environmental issues. It’s very easy to focus on —  there’s so many environmental problems. I mean, increasingly I sort of feel like, biodiversity, and we talked about biodiversity loss, plastic pollution, water, but there are so many issues which might actually prove to be even more serious than climate, but they’re harder to measure.

Vish Hindocha: That’s really helpful as a mindset.

Barnaby Wiener: Yeah, I’m nervous about allowing, giving people the sort of easy option of just saying, “Let’s just focus on one thing.”

Vish Hindocha: There’s a false comfort in that simplicity sometimes as well. You remind me of two things, one is I think it’s good heart’s law that when a metric becomes a measure, it ceases to become a useful metric. And then there’s often, and I have a slight issue with this, often trotted out a sort of Truckerism around what gets measured gets managed, which actually, having read a lot of his work, and I think the Trucker Institute has actually published something that says that wasn’t actually the intention of it. It was actually a warning, not an ambition.

Barnaby Wiener: Yes, yes, yes. It’s a wonderful example of how things get misinterpreted. Yeah, yeah.

Vish Hindocha: So, A, I think they’re doubting that whether he ever really wrote that or said that, I haven’t found it in any of his literature, but equally, his sentiment was almost the opposite. Be careful what you measure because that’s what you end up managing to when we know that. To your point, I think it’s often attributed to Einstein: Not everything that counts can be counted. And we have to be really mindful of how we think balance, especially in our industry, the qualitative and the quantitative or the forward-looking and the background. And there are things that we just can’t.

Barnaby Wiener: I couldn’t agree more. And I feel like that is, in a way, one of the great challenges of our age. One thing you asked about how the landscape had changed, one thing that’s really changed in the last year is just the extent to which we’ve become even more obsessed with AI. And obviously, I’m probably the most ignorant person on the planet when it comes to machine learning and whatever, large language models. But clearly there’ve been some interesting developments in terms of what these things can do. It strikes me that we have a sort of dangerous obsession, almost worship of technology in this of post-religious era that, I’d say generally in the West, has sort of taken hold. It almost feels like sometimes tech is the new religion. I mean, not wishing to labor the point about the Horizon scandal, but it’s a classic example of where the default assumption was that the machine can’t be wrong. Well, actually it was.

And as I think about how that plays into sustainability, the obsession with tools and measurement, it’s a false comfort. I’m standing up for human beings. I think AI — these machines are very clever and the people who’ve sort of figured out how to get to the point where we can create a machine that it’s clever, they’re very clever. And what the long-term consequence is of that, I’m not too sure. I can see ways it could be helpful; I can see ways it could be disastrous. But at the end of the day, you can’t replicate the human brain, there are sort of strands in our own neural networks that we have to have faith in and trust those rather than trusting in...

Vish Hindocha: Everything in ones and zeroes and the infinite spectrum in between. So when you’re standing up for humanity, I want to take you back to optimism and the onus and the charge that we have to see through some of the challenges. So whether it’s the increasing complexity, the charge nature of some of the language, the precision, the polarization that we face, or even the threat of AI or regime change, what is your hope or what is your message of hope or things that give you inspiration or hope as you look forward in terms of how the industry can continue to grapple with these issues?

Barnaby Wiener: My hope is that as many as possible try to congregate in the middle ground. For all sorts of reasons as investors, we need to engage with and be concerned about the sustainability of our ecosystem, both broader ecosystem and the investment ecosystem but at the same time recognize that there are no simple quick fixes and shortcuts. And I hope that people, we move beyond this sort of slightly defensive mindset of trying to appease lots of differing stakeholders and are able to almost set our collective flags in the ground and say, “This is what we believe, this is the guiding principle that’s going to inform our strategy, and this is how we’re going to implement it.” And to almost just ignore a lot of the noise on either side. So that would be my primary hope.

It seems to me, and you would have much more insight than I do, but it seems that most of the conversations we have with other stakeholders, particularly with asset owners, are actually very constructive in that regard. My sense is always that actually most people in the world are quite sensible. Unfortunately, the ones who are less sensible tend to often attract the headlines. So when you read the news, you get a sense of a sort of really warped world that we live in.

Vish Hindocha: Reality, yeah.

Barnaby Wiener: But actually, I think the majority of people come at this from a sort of sensible and authentic perspectives, I guess. What I hope in terms of what gives me optimism, I think sometimes I feel very strongly that a crisis often brings out the best in people. And it feels like there are multiple crises going on at the moment. There’s a sort of geopolitical tectonic plate shifting crisis, there’s a climate and biodiversity crisis, there’s a crisis of inequality, there’s a crisis of politics, which I think is pretty widely recognized that wherever you are, certainly in the US or in Europe, that political system is not working as best as it could.

Vish Hindocha: It’s fragile,

Barnaby Wiener: Fragile. And I think and hope that people respond positively to that. If they don’t, then maybe we’re in trouble. But that would be my primary hope is that we can get away from the fear/aggression of people taking extreme positions on one side or the other and shouting at each other, and actually try and find some —

Vish Hindocha: Find some alignment?

Barnaby Wiener: Yeah.

Vish Hindocha: Yeah, and plant our flags together. Well Barnaby, listen. Thank you so much for your time. Really appreciate it and all of your insight. It’s been great to have you back again on the podcast.

Barnaby Wiener: I’ve enjoyed it very much, thank you.

Vish Hindocha: Thanks.

Speaker 1: The views expressed are those of the speaker and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as an offer of securities or investment advice. No forecast can be guaranteed. Past performance is no guarantee of future results.

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