Feature – ESG
“They are all relevant, but in 2021 perhaps they will be more relevant,” she adds. Ian Burger, head of responsible investment at Newton Invest- ment Management, expects to see better quality data in the year ahead. “Up until now, diversity has focused on gender because that is where the data is,” he says. “Diversity extends beyond gender but accessing reliable and quality data is tough when it comes to ethnicity. We will, however, start to see that coming through in 2021 spurred on by Black Lives Matter.” It is not just racial disclosures that Aon’s McMahon expects to see. “There has been an increased focus on racial issues in the past eight months, but we have been talking about gender for a long time and we have started talking about disability inclu- sion. We are going to see an increased focus on having truly inclusive company boards.
“This is an area where we are going to see real attention through the setting of targets,” she adds. LGIM’s Ramscar expects that the themes which emerged last year will continue in client conversations in 2021. “There has been a focus on the S and the G, on things like healthcare and inequality. It’s not going to be solely about the E this year. “There was an evolution in 2020,” she adds. “People were interested in climate going into the year, but after the pandemic hit, we have had more meetings asking about the S and the G.” For Ramscar, the trend is clear. “The social aspects of investing will be important this year,” she says.
Old issue, new approach
Despite the events of 2020 focusing investors’ minds on the social aspects of ESG, climate issues are unlikely to take a backseat.
De-carbonising portfolios will remain high on asset owners’ priory list thanks to stakeholder pressure, government targets of being net zero by 2050, regulation, Joe Biden in the White House and COP 26 being held in Glasgow. “On the climate side, it is going to be an important year,” Mennie says. As such, investors are stepping up their stewardship efforts in this area, says Burger. “Large companies are turning up the heat on climate change by setting some encouraging carbon neutrality targets,” he adds. “But investor focus will be on div- ing into the detail of how companies are going to achieve their headline targets and commitments.” Yet Varco believes that the approach to achieving this could change, building on the momentum he has seen in recent years. “We are moving away from fossil fuel divestment to a more holistic view of alignment with de-carbonisation trends,” he adds. “The move towards net zero by 2050 in climate- aligned portfolios with much more sophistication is gathering pace.” This will be a material change as the regulator is pushing asset owners for greater disclosure on the carbon footprint of their portfolios.
There is a view that Covid brought some kind of green shine to the world.
Chris Varco, Cambridge Associates
There is another catalyst. Varco says that the Covid pandemic has sharpened minds on the need to reverse the damage we are causing the environment. Fewer people traveling in the spring meant that the top of the Himalayas became visible from the ground and Venice’s canals were clearer. “There is a view that Covid brought some kind of green shine to the world,” he says. Persistent concerns over climate change will continue to influ- ence investors. “We cannot ignore the regulatory angle here,” Ramscar says. “As we emerge from the virus and with COP 26 coming up, it is also going to be climate, climate, climate this year. “Given COP 26, given DWP regulations, given the changes to the Pensions Bill that will align schemes to TCFD reporting, investors are either thinking about or starting to think about what such regulation means for them. “It is a more explicit climate theme this year,” she adds. “It is not just about what you can do from an environmental per- spective. It is people getting explicit around the need to align to TCFD and the Paris Agreement.”
Ambachtsheer expects a big trend in the energy transition to be how asset owners measure corporate progress on de-carboni- sation and alignment to net-zero by 2050. “Engaging with companies during the transition will be a key topic again this year,” she adds. “The question isn’t if they will transition, it’s how and how quickly.”
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