ESG in 2023
Sustainability is about transformations and in 2023 it is the detail of how those transformations are implemented that investors will be discussing. Skeates points to COP27 in November being set up as the implementation COP as a sign of things to come. “We have the transformation of our everyday systems towards sustainable versions,” she says. “That is happening at the industry level, as well as when companies discuss their transi- tion plans.
“It is about how transportation is evolving, and what the sus- tainable versions of personal transport, freight shipping and aviation could be,” Skeates says. “It is how we think about food and agricultural production, and the shift from polluting and destructive processes to regenerative versions.” This would mean investment approaches need to be potentially “re-thought”.
“If you were to look at this from a historical perspective, we are living through a pan-economy transformative event. We can see it moving from one state into another. That is what I mean by “in the detail” of these transformations occurring,” Skeates says.
Long-term impacts Amelia Tan, LGIM’s head of responsible investing strategy, says: “In 2023, people will want to ascertain whether the world is on track to meet our collective goal to limit global tempera- ture rises to 1.5-degrees Celsius. This includes whether govern- ments and companies have set targets that are ambitious enough and plans that would be credible in implementation. “The energy crisis has clearly put a spanner in the works, let’s put it that way,” she adds. “We have found that people are con- cerned that the short-term measures taken will have a long- term impact on our net-zero ambitions. That is an emerging area of concern about the global economy, not just in specific portfolios.”
Show me the data Concerns over the success of net zero come at a time when asset owners want more than words from their asset manag- ers. They want evidence that the strategy is working. Ramscar says that many asset managers have committed to net zero, but in the year ahead they will be under pressure to evi- dence what they are doing more widely on their clients’ behalf. “We have spoken a lot about measurability and outcomes, and how there has been that evolution in stewardship of outcome- driven engagement to make real world impacts, but in 2023 there will be more of a focus across the E, the S and the G. “This will be a big focus in 2023, as will bringing the granular- ity and quality of data to investors. While this has undeniably got better, it is still a work in progress. Clients want to see a lot
38 | portfolio institutional | December-January 2023 | Issue 119
Many of the solutions to having affordable and secure energy, will fortuitously be the solutions that also ramp up green and sustainable
energy. Jon Wallace, Jupiter Asset Management
more of this information relating to their own investments being evidenced back to them,” she adds.
The natural world
There is more to the environment than climate change. Biodi- versity has been in the background for some time but it is being discussed more and more during the roundtables we regularly host and was featured in portfolio institutional’s ESG Club Conference in July. “For the past few years, greenhouse gas emissions have been the focus, but biodiversity and defor- estation are increasingly coming to the fore,” Tan says. It appears that biodiversity’s time has come. “At some point, we have to stop saying this issue is on the horizon and get into the nitty gritty,” says Therese Niklasson, head of sustainable investment at Newton Investment Management. “I have picked up on more practical work coming into the mar- ket around frameworks and applications for how to think about biodiversity. That should take us forward. “If we feel that climate change is tricky, this is another beast, but it is important,” Niklasson says. Tackling this particular beast means that the level of detail Skeates discussed earlier will be evident in this area, too. Thinking about the issues affecting nature and biodiversity, such as water, deforestation and agriculture, in detail means considering the impact by location, an economy’s dependency on nature and how to supply more information to investors. “We have seen the climate-related impacts from water shortages and the link to a society’s ability to produce food. Nature pro- vides solutions to climate in tandem with the shift to a net-zero economy as well as supporting our everyday lives. “2023 is likely to bring a much wider investment industry
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