The Institutional Investors Group on Climate Change – ESG Club interview


As far as regulation goes, first and fore- most the net-zero initiatives and frame- works were always intended to be volun- tary and be a guide for how investors could undertake things. They never have, and never will, aim to be quasi-regulatory. That is not their role, mandate or purpose. One area where it would be helpful to have clearer guidance is on competition law and fiduciary duty. We’ve seen some posi- tive and helpful signals in the UK and in Europe, which have made things easier.


asset allocation while thinking more on a macro level. For asset managers, they are for-profit businesses. They all have their speciali- ties, and what they do is tied to the man- dates awarded by their clients. There are boundaries to what they can do within those mandates.


What is important, and useful, is that the Net Zero Investment Framework is a common framework used by asset own- ers and asset managers on the issue.


Do asset owners or asset managers need to do more work on this issue? There is evidence of lots of good work underway already. However, while asset owners may face


challenges face the more


We’re seeing huge efforts here, including the building of entire teams.


around


resources, the larger asset managers arguably


complex


challenges owing to the number and vari- ety of mandates they have. It’s important to recognise that there are lots of different types of asset manager with different approaches, so it is hard to generalise. However, what we can say is that any per- ceived slow progress in implementing net-zero plans is not for want of trying.


What needs to happen from a political and regulatory viewpoint? Some things are happening. An example is President Biden’s Inflation Reduction Act – which is designed to incentivise growth in the green parts of the economy. That helps to show where money should be going by sending the right price signals.


Are the targets set by government and industry bodies stringent enough to address climate change? At this stage, no. The Net Zero Invest- ment Framework highlights the need for investors to be proactive in this space. But things have moved quickly and govern- ments have generally been reluctant to regulate businesses because they don’t want to curtail economic growth. Some of the friction we are seeing is down to the fact that investors can only do so much on climate change. There is a need for certain bodies, including policymak- ers and regulators, to catch up to where investors are.


There has been a spate of institutions withdrawing from climate change initia- tives, such as the Net Zero Insurance Alli- ance. Why is this happening and does it worry you? I can’t speak for the insurers but there are reasons for joining different initiatives and there are different political risks in different geographies. It is worth noting though that a lot of those insurers with asset owner businesses are staying in those asset owner alliances. This also highlights the different approach from insurers, who address risk, and investors who can see the investment opportunity presented by the transition to net zero.


The push back against climate change looks politically motivated, especially with an election coming up in the US. Is this worrying? We are looking at changing some big engines of the global economy, so it is naïve to think that there would not be any resistance.


On a political level there are positive examples. If you look at the Australian case, it was shifted through an election by voters wanting to make a positive adjust- ment on climate change. In the UK and EU, if it is done in a fair and just way, there is support for the transition. But there is friction in some areas. And there will always be that friction given how much we want to change. However, I am not worried that we are going down


Issue 126 | September 2023 | portfolio institutional | 27


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