Putnam’s Collins draws inspiration from nature to invest in ESG
After 18 years working at one of the world’s largest investment managers, Katherine Collins decided she wanted to reconnect investors to the real world.
Collins, who had served as both portfolio manager and research director, believed the primary role of investing had been lost. Finance has eclipsed investment. Securitizations and high-frequency algorithmic trading had become a priority. Efforts to contain risk by breaking it into pieces have amplified 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 an art and a science, and she has written a book on the subject: “The Nature of Investing, Resilient Investment Strategies through Biomimicry”.
“I dove deep into the roots of sustainability. I even studied biology,” Collins said.
Watching bees teaches us how to be better investors, Collins writes in her book. She credits the work of Cornell University bee researcher Thomas Seeley for helping her develop a new perspective.
“Bees don’t hide in a small bee conference room and give PowerPoint presentations,” Collins said. Just like good investors, “bees collect data, they share information, and they repeat this process until the information is complete and compelling,” she added.
In 2017, Collins brought these concepts to Putnam Investments as the firm’s first head of sustainable investing.
Collins developed a sustainable investment model that could be used across Putnam’s family of funds. It repositioned two existing funds by giving them an ESG orientation. 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 EFT versions traded on the New York Stock Exchange.
“A lot of people in the sustainability space just focus on the risk-driven, sustainability side,” Collins said. “But whenever there is a risk, there is also an opportunity. There is either an opportunity to better manage this risk or to create a solution that goes beyond this risk and really adds to the business.
Large-cap growth stocks like Apple, Bank of America, Microsoft and Amazon populate the largest Putnam Sustainable Leaders fund, which favors technology, consumer cyclicals and healthcare. Sustainable Leaders’ 3-year annualized total return was 19.64%, while the smaller Sustainable Futures fund returned 16.11%, according to Morningstar.
What is different about Collin’s approach is the lens used to identify actions. “We are looking for real leadership and where strength and sustainability make the company a better company over time,” she said.
In the case of Apple, Collins said the company is a leader in handling data and protecting customer privacy. Apple encourages customers to recycle iPhones and in the next few years Apple plans to use 100% recycled materials in its products.
“The idea is that they won’t take anything out of the land anymore, but they will continue to grow. It’s provocative,” Collins said.
Another Collins pick is Bank of America, which Collins says is ahead of its peers in reputation management and credit risk. “They were among the first companies to implement pay equity, they’re among the first to commit to more transparency and disclosure about their own team, and they’re improving diversity over time,” Collins said.
Collins expects interest in sustainable investing to continue to grow. Businesses have worked to meet demand and the money has been poured into sustainability-focused investments.
The Forum for Sustainable and Responsible Investing found that a third of assets under professional management are currently invested using sustainable investing strategies, a figure that stood at $17.1 trillion in 2020, in up 42% from the $12 trillion invested in 2018.
Despite a strong interest in sustainable investing, Collins noted that “there is a real disconnect between what advisors perceive as their clients want and what clients say they want.”
A large majority (79%) of individual investors said they were interested in sustainable investing, according to research by the Morgan Stanley Institute for Sustainable Investing.
Interest was highest among millennials (99%), people born between 1981 and 1996 who are entering their years of highest income and investment, according to the study.
“There’s an incredible opportunity for an advisor to connect the dots and be a little more proactive,” Collins said. “If you’re an advisor, this is an area of focus and a way to connect and grow your customer base.”