ESG interview – Nest
It is work in progress, and most investors within this space are on a journey towards fully embedding this, but it is important that our fund managers work with us on this. We have also seen new FCA [Financial Conduct Authority] rules come through which are capturing more companies. So far the focus has mainly been on larger public companies, which is why it is important to appoint managers that are engaging with the underlying portfolio companies to get good quality, consistent data and start generating good reporting frameworks.
It is quite important that we are targeted and prioritised with this. We have to focus on the most material issues.
Climate change is your key ESG priority, but how are you planning to reduce green- house gas emissions in your portfolios by 2025? We have committed to reducing emis- sions by a third with a baseline of 2019. We have several pillars within our policies that help us with that target. We already discussed the climate aware strategy, which has a 35% decarbonisation target within that mandate. We have made progress within equities and are in the process of setting up net- zero alignment strategies across other asset classes. That involves decarbonisa- tion targets for the short, medium and long terms.
We are also stepping up our climate engagement with companies, looking at how they are positioned. We are engaging with them where disclosures are lacking, or if they do not have robust strategies that meet the targets they have published. For us it is important to achieve real- world impact through engagement, rather than just decarbonising our portfolios because that does not make the blindest bit of difference to real world emissions. It is important that we move with the market and take the market with us on this journey.
Another strand of our work is through advocacy. We spend a lot of time engaging with policymakers to help set out a range of regulations and new reporting require- ments that form better policy disclosures for our investee companies on what “good” looks like. We are part of the Transition Plan Task- force, for example, to set up transition plans for different sectors across the econ- omy and investments in climate solutions and allocating capital into renewables. It’s important that we do not just think about risk, but also tap into the opportunities.
The flipside of focussing on real world impact is that it might become harder to meet your target. Will you meet it? We are on track to do so in terms of where we are positioned with the Climate Aware fund, which is where a lot of our decar-
bonisation is coming from. It just so hap- pens that the mandates we have else- where do not lend themselves to being heavily invested in fossil fuels. A lot of our carbon emissions are generated from our equities. Other strate- gies are naturally quite low in carbon, but that does not mean we are not working with them. At the moment, it does not look like we need to make radical deci- sions to meet the target.
You didn’t attend COP27? Not this year. On the emerging market side, obviously the event was in Egypt this year. We are part of a group looking into how investors can support an emerging market transition.
It is important that investors do not over- look the importance of emerging markets in their transition plans. The market has a different pathway to net zero, it is more carbon intensive but in order to reduce real world emissions, it is important that emerging markets are part transition.
of that
It is important that investors do not overlook the importance of emerging markets in their transition plans.
What are the main topics you engage on and how could this change in 2023? It is a tough economic backdrop for our members at the moment. We will continue to focus on the long-term. Climate change will still be a key focus but there are other areas of interest, for example, human rights on the back of the Russia-Ukraine war. We are thinking more about the companies and countries that we invest in. We are considering human rights more. We have done a lot of work on low pay, which will continue to be a focus going forward. We have campaigned for a living wage. That is set to continue, particularly with the tough financial situation in the UK. It’s important that where companies can, they should pay workers fairly. There are always new things on the hori- zon. We are also stepping up on steward- ship, but climate change and workforce conditions are going to be key.
34 | portfolio institutional | December-January 2023 | Issue 119
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