Integration of ESG and climate change remains “at the core” of the Pension Protection Fund’s (PPF) stewardship strategy.
Barry Kenneth, chief investment officer at PPF, said that the past 18 months have been “challenging” for the UK investment industry with the onset of the war in Ukraine, the LDI crisis in autumn 2022 and “persistent” high inflation resulting in a cost-of-living crisis “not seen in decades”.
He said that among all of this, integration of ESG and climate change “remain at the core of our stewardship strategy”.
According to Kenneth, companies and external managers the PPF engages with often describe the concept of being “on a journey” with regards to stewardship and sustainability.
He said: “This analogy is particularly pertinent when I consider the sentiment globally towards sustainability.”
He explained that following “several years of progress”, the industry is now experiencing “pushback” on the value of integrating ESG into the investment process from certain parties around the world.
He continued: “In other words, the sustainability journey that responsible investors such as ourselves are on, has become bumpier”.
Kenneth said that despite the change in attitudes, the PPF continues to recognise the value of strong stewardship and ESG integration as part of its wider investment process.
He said: “The focus on understanding long-term material risks and opportunities has continued unabated, with improved data accessibility, reporting and analysis across the portfolio. I’ve always firmly believed in understanding our risks, and doing so using evidence-based data.”
He added: “This belief is shared across the investment team and has helped us to improve our understanding of ESG data and make more informed decisions about the portfolio, especially in our unlisted investments where pre-investment due diligence is even more critical.”
As result, Kenneth said that the PPF is supportive of innovations looking to steamline and standardise the asks from ESG reporting such as eFront’s ESG Outreach project.
He said that the pilot has already delivered actual emissions data for number of its portfolio companies.
“The sooner we can use our day-to-day systems to access emissions data for our private markets holdings, the more confidence we can have in making investment decisions informed by our portfolio alignment positioning,” he noted.
Kenneth said that the PPF also continued the progress on ESG integration across its internally managed portfolio, rolling out improved ESG reporting to its short-term Strategic Cash desk, which will form the basis of further reporting improvement for other desks.
He added that the development of its Climate Watchlist is a “huge step” forward for the PPF to focus its efforts on its most emitting investments.
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