Brunel Pension Partnership – Interview
Tesco’s tax practices. It is always going to be a challenge to know when to draw the line and assess the degree of genuine commitment to improvement by a company.
Unfortunately, it is often not until a scan- dal is reported that you get to see the com- pany’s genuine response. Supply chain issues are not new and we have seen them in many areas. It is chal- lenging, especially when they are global and third parties are involved. What we would say is that during the past year the focus on human capital management has been
elevated. Our engagement with companies and our expectations of them will increase over time. To come back to the point of ESG funds investing in Boohoo. It is important that ESG funds are differentiated from sus- tainable funds. I would not expect to see a fast fashion company in a sustainable portfolio. An ESG fund would look more at relative scores and screening whereas a sustainable fund is more focused on the future impact and delivering the sustaina- ble development goals.
Another point this scandal highlights is the scarcity of workforce social data. That is part of why we are working with the workforce disclosure initiative which seeks better disclosure from companies.
You work with other institutional investors on engagement. Any examples of success- ful collaborations?
An example last year was the investor mining sector initiative led by the Church of England and the Swedish National Pension Funds. Brunel attended all the workshops and meetings and was part of the collaborative engagement. Within a year, this led to the establishment of a global database of standards on mining and tailing facilities which have since been adopted by mining companies. The progress we made within 12 months was phenomenal and could not have been achieved by a lone investor.
Are you applying your ESG standards out- side of equities? We do not hold our partner funds’ fixed income assets yet. But we do engage whenever possible.
Last summer, our
chair, as part of a coalition of £10trn worth of assets led by the Impact Investment Institute, signed a letter to the govern- ment to make the case for issuing green gilts. We were pleased to see that this let- ter led to the UK government announcing plans in November to issue its first green bonds.
That will be the first in a series of new issuances which will help to fund projects to tackle climate change, provide much needed infrastructure investments and create green jobs across the country. We have engaged on this at policy level and will be reviewing ESG standards when we come to our fixed income portfolio, which should be pooled this year.
Where do you see opportunities to increase investor involvement around responsible investing in fixed income? The timing of engagement is key, particu- larly prior to the issuance. Our belief is that well governed companies are more likely to make their loan repayments and improve their credit worthiness. We have seen some interesting develop- ments. Besides green bonds, we are now seeing blue bonds and companies that are integrating ESG into covenants. For example, the interest repayments are linked to the delivery of the issuer’s sus- tainability targets. If the company fails to reach their targets, they pay more money to their bondholders. Compared to the divestment versus engagement case for equities, bonds are a primary source of debt for companies whereas equities are often traded in the secondary market. So, selling a share does not have as direct an impact on the com- pany as refusing to buy their bond does. If investors refuse to buy corporate bonds based on the company’s sustainability credentials, that potentially creates a huge
problem. People are increasingly starting to
see the difference
in importance
between the primary and secondary mar- kets. The Transition Pathway Initiative is doing some interesting work in this space. It is looking to develop a frame- work for assessing corporate fixed income issuers and we hope that will lead to greater engagement with these compa- nies. As investors, we could have a big impact here.
What are the big topics you will be work- ing on this year?
Climate change will, of course, be a con- tinued area of focus for us, particularly in the lead-up to COP 26. We will also con- tinue our work with banks. We will be looking under the bonnet, in particular working with the institutional investor group on climate change, establishing a bank working stream to look at these commitments and developing better standards. We will also be reviewing the upcoming AGM season proposals and continuing our work on diversity. We are working with asset owners reviewing how we review and monitor asset manager diversity and aim to collectively publish updates later this year. We are also look- ing to expand the understanding of diver- sity from beyond just focusing on gender to also include race.
The pandemic has also highlighted the importance of human capital manage- ment, so we will continue to work with the Workforce Disclosure Initiative to seek better disclosure of social elements within companies. We are also collaborating with them on the Good Work Coalition, which will engage with companies on precarious work, the living wage and the living hours. That will be an important area of focus for us this year. Following the 2008 financial crisis, we saw an increase in precarious work, so it is important that we try and engage on this in the new year.
Issue 100 | February 2021 | portfolio institutional | 15
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48
