They are one of the most responsible investors we work with because it is obvious to them that due to their investment hori- zon these issues are relevant.
They have never said anything in public about what they do because they see it as a risk to discuss what they are invested in rather than just engaging. de Zylva: No one is perfect, but I want to know if companies or institutions are on the journey. If they are, we will have that conversation. We will give them some slack. It does not mean we will not be critical, but we will have an understanding. This is different from the PR spin happening on the climate front, where analysis says that most claims do not add up. If you are failing to meet climate targets on your own terms, with climate being more advanced than biodiversity, then we are in trouble. But let’s have that conversation, because we could decide how to get there and what it would look like. We are not going to pull our punches, but we would have an understanding. It is a different type of relationship. Micheli: It is still relatively light on the biodiversity side. We have a programme – FinBio – in partnership with the Stock- holm Resilience Centre and biodiversity scientists. We also have a biodiversity expert who is building a platform called Restor, which covers many of the world’s restoration projects. We are building a framework, and now is probably the time to think about it every time we talk to a company. We have thematic funds, so we invest almost forever, as long as the companies are there and doing well. We are in a pretty good position to engage with companies for years and make them accountable.
If NGOs write reports on which companies are doing this or not, it is helpful because everybody sees it and will feel the need to do more. Anything that we can tell companies that they should be doing, we are eager to hear it so that we can give that message. This is important for the long-term value of a company. It will become a risk and the ones doing something positive will potentially have a positive stock re-rating.
Where does this fit in with Railpen’s priorities in terms of stewardship? Vyravipillai: In the past couple of years, the attention climate has received versus biodiversity has been incomparable. What we are faced with now is a watershed moment where we could have something similar to the Paris agreement on climate come out of COP15. Governmental pressure and guidance in this direction creates incentives for asset owners and fund managers to tackle this issue more vigorously. To counter Paul’s point, I have worked in the industry as a financial analyst for the better part of a decade, and over that
14 February 2023 portfolio institutional roundtable: Biodiversity
period I have seen huge change in how we, as investors, look at stewardship and company engagements. Today, we are much more targeted, and as a result more effective. At Railpen, our members care deeply about these issues and are more vocal than ever. Manuel: Will TNFD work for pension funds? Hill: Yes, in the sense that if you are building on the Task Force on Climate-Related Financial Disclosures (TCFD) and not treating it as a box-ticking exercise. You are looking at the intent and the outcome in that you are focusing on identifying material risks. You are looking at the impact your investment decisions have on the natural capital and eco-system services they may well be reliant upon.
There are tensions because there is also the social dynamic and the just transition that have to be considered.
Will TNFD get more investors to be actively engaged in this? Hill: I believe it will. The regulator has committed to adopting the TCFD recommendations and like the schemes we regulate, we are not going to want to publish something that says we are not good at doing this and haven’t adequately considered the risks. We also want to lead by example and be seen to do so. That is what I believe will happen with the TNFD recommen- dations. Funds will adopt them and factor nature risks into investment decisions, as best they can. It will provide the nudge to focus the mind on what they need to do and when they need to do it by. Manuel: One of the big benefits of TCFD is transparency. That influences behaviours, so there is a huge nudge aspect to it. Ultimately, TCFD and TNFD are a means to an end. That is all they are. They are a framework for thinking about and disclos- ing risks, on climate and nature. You mentioned commitment. Nowhere within those frame- works do you need to make a commitment. What is important is how everyone thinks about their objective and the role they play and how that can translate into a goal.
TCFD and TNFD are ways of structuring how you are going to deliver on the goal and provide some degree of data to help oth- ers understand their position in their relationship with you. But my concern about frameworks is that if there is nothing about the end goal, it is only ever about the means. Hill: I agree. The end goal, the outcome, is critical. Micheli: When we look at companies, we do not find much data on biodiversity. Companies do not usually know their impact. Some do but for a big company it is difficult. We welcome companies being forced to report more on that and have metrics for it, but are they going to do something because of that? At least we have something we can talk to them about and over time it will evolve. It will not be perfect from the start and it will change, but it
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