Feature – ESG Club Conference 2022
Socio-economic distribution and equity is allocating capital that improves access to affordable healthcare, affordable energy and affordable property. “Community voice is how you are impacting the communities in which you are investing,” she added. “And how are their voices included in the project that impacts them, or ultimately, in the finance that is flowing towards them?” The Institute is gathering asset owners and asset managers together with development finance institutions and other gov- ernment bodies to get behind achieving a just transition. “It is about putting our money where our mouth is,” Landymore said. In the coming months, the group will decide on the criteria to incorporate into their strategies and which could ultimately label investment products that are looking to achieve a just transition. The main aims are to tackle greenwashing and attract more investment. “We are mobilising more capital because when you can define it, you can put money towards it. We are hoping through this to kickstart the mobilisation of significant amounts of capital towards the just transition.” But achieving this will involve more than private capital. Gov- ernments and development agencies also need to back it. So how can all this capital raised from different areas be blended effectively together?
“Institutional investors are absolutely critical, but due to their fiduciary duties and other governance and structural issues, it can be hard to move into an area that is new and high risk. And especially in emerging markets where those risks, including political risks, are more acute,” Landymore said. “One of the important actors in this space are governments and the institutions governments back,” she added. In the UK, the development finance institution is called British Interna- tional Investment. There are similar organisations in most other countries.
“These sit on huge amounts of capital and play a de-risking role in the market through guarantees, insurance, currency financing, also through grant funding to upskill or assist in the creation of investment vehicles. As a result, institutional inves- tors can move in.”
Listen and learn Saving jobs and supporting communities are good outcomes from an asset manager investing your capital, but pension schemes need to make money to do what they were established to achieve: pay pensions. There is an investment return aspect to fiduciary duty along with tackling climate change and social inequality, which all play into Railpen’s aims. “We are in the early stages,” Gopinathan said. “We need to see a lot more, we need to listen a lot more, we need to absorb from companies a lot more. There’s a lot of knowledge building that needs to happen in the coming months.”
36 | portfolio institutional | September 2022 | issue 116
His reasons for this approach are clear. “A just transition as a headline looks fine, but we do not want a situation where the tail is wagging the dog,” Gopinathan said. “Going in and just throwing capital at something we do not understand the specif- ics of because it’s a headline. “We need to see evidence that companies and communities are able to transition the economy from extractive to regenerative. We are still in listening mode, understanding the challenges from companies.” Gopinathan said he is seeing examples of movement from extractive to regenerative models in India and South Africa where coal mines are being phased out in favour of solar energy. “That creates not just a net zero or a transition story, it creates an inclusive growth story,” he said. “You have a situa- tion where coal miners have not had great lives, it is a health hazard for them and they are not making above average wages.
“The fact that you can phase it out and bring in a solar facility improves things and on multiple levels, social equality being one of them.” He said he is seeing a similar approach in the US, where utili- ties are buying non-functioning coal plants and repurposing them or integrating them into their operations where they will be phased out. “So there is evidence coming in. But we need to see a lot more. “We need to listen to companies as well as key stakeholders to understand what the challenges are in particular sectors and then go from there,” Gopinathan added.
It’s good to talk
Engagement is a big part of sustainable investing, so are board- rooms receptive to the idea of a just transition, of leaving no one behind? “Do they say, yes? They do. Does that mean much in the tran- sition itself and in terms of reducing emissions? Not much,” Gopinathan said. “Companies are willing to engage, are willing to listen, but it is early stages. That is why the evidence base and the push is needed for us to become more intelligent around what the challenges companies are facing in balancing social equality, climate change and their shareholder value.” On the topic of engagement, how do we get more community voices heard in the transition to a net-zero economy? “It is hard, because it is not within the culture of financial ser- vices at large to include community voices,” Landymore said. “That is not to say it is impossible. “If we are going to tackle inequality, if we are going to keep that risk at bay, we have to consider the affected communities,” she added. “It is an area that is underdeveloped but is an area where we do considerable work.”
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