ESG: A responsible investment ‘wishlist’ for 2019
What would be your single biggest wish for the responsible investment industry/movement for next year?
IPE asked the heads of responsible investment (or equivalent) at various asset owners and asset managers, as well as individuals at some of the most influential advocacy and campaign organisations, for contributions to a sustainable investment ‘wishlist’ for 2019.
The instructions were simple: to provide as authentic or personal a comment as possible and, as much as possible, avoid using the ESG/SRI/RI acronyms.
Perhaps unsurprisingly, a common thread is climate change. At the same time, the way respondents addressed this captures the different approaches and objectives that are often associated with “ESG” (despite ESG not being “a thing”, as the head of responsible investment at one asset manager has previously – and sternly – said).
Some respondents’ wishes convey a risk management perspective, where information about and analysis of environmental, social or corporate governance factors provide valuable input in the investment decision-making process, with a view to improving the financial characteristics of a portfolio.
“We urge for standardised, concrete and relevant sustainability data… Company disclosures are the basis – because what gets measured gets managed”
Carine Smith Ihenacho, NBIM
And as David Russell at the UK’s Universities Superannuation Scheme highlights, it is not just the asset side of the equation that pension funds need to consider, but the climate change-linked impact on liabilities.
Other comments demonstrate the increasing preoccupation with non-financial impacts of investments.
Claudia Kruse at €485bn Dutch pension investor APG says giving beneficiaries an opportunity to express their “sustainability preferences” will become more and more important, while Catherine Howarth, CEO of ShareAction, wants quality of life considerations to be seen as relevant to investors’ fiduciary duty.
Without further ado, here is IPE’s Responsible Investment Wishlist for 2019…
Carine Smith Ihenacho, chief corporate governance officer at NBIM, manager of Europe’s largest sovereign wealth fund
“Our wish for 2019 is that more companies go from words to numbers. We urge for standardised, concrete and relevant sustainability data. We believe sustainability numbers are financial data. Company disclosures are the basis – because what gets measured gets managed.”
Christina Olivecrona, senior sustainability analyst at Swedish pension buffer fund AP2
“My new year wish is the creation of a World Climate Organisation with the authority to create, implement and enforce a global carbon tax. The organisation should also be responsible for redistribution of the collected tax money to [finance] adaptation and mitigation practices to counter climate change.”
Nico Aspinall, chief investment officer of The People’s Pension, a £5bn (€5.5bn) UK master trust
“My wish would be to have mandatory TCFD – Taskforce for Climate-related Financial Disclosures – reporting on every stock exchange in the world. I would want consistent opinions from companies as to the climate change risks they’re facing.
“My wish for 2020 would be… Data, we’re just missing data. I dare say you can phone me in a year’s time and I’ll have that same wish.”
Greg Haenni, CIO of CPEG, the CHF13bn (€10bn) public pension fund for Geneva
Haenni told IPE that CPEG’s wish was for the implementation of international standards for sustainability information:
“The biggest challenge is to determine international standards for sustainability information. Without standards, it is difficult for companies to know exactly how to measure and report on some dimension of sustainability performance. Without standards, the institutional community cannot make meaningful comparisons of performance among companies and over time.”
Laetitia Tankwe, personal adviser to the president of Ircantec, a French public pension scheme with €10.9bn of reserves
“Many people ask themselves about the relevance or the need to practice socially responsible investment. Is it desirable? Is it profitable? What additional value do these practices generate?
“Our wish for 2019 would be for the justification burden to be turned on its head: it would not be investors embarking on socially responsible investment who would have to justify their decision, but those who don’t. In 2019, responsible investment becomes investment full stop!”
David Russell, head of responsible investment at the Universities Superannuation Scheme
“There will be increasing pressure on pension funds to address climate change risk in their portfolios, from government, regulators and their members. And this will mean assessing not only what impact it could have on their assets, but also what it could mean for their liabilities.
“And here’s the wish… that pension fund consultants more proactively address climate change risk with trustees. Consultants will have a critical role to play in assessing these risks on behalf of their clients as the vast majority of pension funds rely heavily on their advice.”
Claudia Kruse, managing director, responsible investment and governance at APG
“Rather than just focusing on the environmental aspects of climate change or the technological side of artificial intelligence (AI), we will need to address the social aspects, too. At COP-24 the Just Transition Initiative was launched and the G7 published its statement on AI. These are highly relevant for investors.
“With a focus on people, giving those on whose behalf we invest a voice and allowing them to express not only their financial but also their sustainability preferences will be increasingly important for the industry.”
Amanda Young, head of global ESG research, Aberdeen Standard Investments
“My one wish would be that people start thinking differently about how they allocate their capital. There are so many opportunities now to find financially rewarding investments that also deliver positive environmental and social benefits or outcomes. A win-win – doing good while making money.”
Joshua Kendall, senior ESG analyst at Insight Investment
“Looking at fixed income, I would like to see more diversity in green bond issuance. Financials have been responsible for 65% of all corporate green bonds issued in 2018, with utilities 22%. Every business must transition its operations and strategies to be more resilient and sustainable in a resource-constrained and low-carbon world.”
Fiona Reynolds, CEO, Principles for Responsible Investment
“My single biggest wish is for investors to step up on climate action. As the IPCC report has shown us we need to limit warming to 1.5°C and we are nowhere near this figure and are currently on target for 3.4°C. There is a big gap between what is required and the actions being undertaken by business, governments and investors. We need more investment flowing into low carbon opportunities both renewable energy and transformative technology.
“The climate agenda is urgent and more action that aligns with a below 2°C world is vital. While there are certainly some leaders on climate in the investment space, there are still far too many laggards.”
Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change
“2019 is all about accelerating action. We need policymakers to raise their ambition levels under the Paris Agreement, investors to evolve their investment processes to align with the low-carbon transition, and companies to respond to the asks of the Climate Action 100+ initiative already backed by 310 investors with over $32trn of assets.”
Catherine Howarth, CEO, ShareAction
“In 2018, we made impressive progress on fiduciary duties. In the UK, the Department for Work and Pensions passed regulations requiring trustees to take into account all financially material factors, including those arising from environmental and social factors; at EU level, the Commission committed to similar reforms through its sustainable finance action plan.
“But is this enough? I’d say not. Acting in savers’ best interests means actively limiting the harm investments made on their behalf could do to their quality of life. In 2019, my wish is that the impacts of investments will be recognised as relevant to meeting fiduciary duties.”
What would be on your list? Add your responsible investment wish in the comments below.