ESG Feature
and the creation of voluntary industry initiatives, such as the Net Zero Coalition. “In our view, these trends will help to unmask the areas of inefficiency by filling the gaps of data availability and lead to adjustments in market prices as they start to incorporate these new pieces of information, therefore, generating a positive feedback loop. “We anticipate an ESG regulatory “revolution” for 2022 and early 2023 with the implementation of taxonomy and Sustain- able Finance Disclosure Regulation (SFDR) coupled with the introduction of ESG preference for investors with MiFID2… not forgetting the revision of BMR,” he adds.
Fighting the resistance Covid has been an economic shock to the system, but there is another healthcare issue that investors need to start thinking about: antimicrobial resistance. “It is estimated that about 750,000 people a year die due to drug resistant infections,” Mennie says. “Unless urgent action is taken that will rise.
“The reality is we assume we can currently treat people in hos- pitals because we have effective antibiotics, but even now we see from time-to-time wards shutting down and being deep cleaned because of antimicrobial resistance. It is a huge prob- lem,” he adds. The Access to Medicine Foundation has published a report on best practices and outlook to help investors focus on the issue and Manulife expects to see assessments of its economic impact in 2022 as well as improvements to structural incen- tives for investment in new antibiotics. “We know this is a serious problem and when you put it in the context of Covid you can see why,” Mennie says. “Antimicrobial resistance is going to become an increasing focus for people in the ESG community.”
This is further proof that providing greater access to medical treatment does not just save lives or boost the profits of phar- maceutical companies. “Providing access to medicines is not just a social benefit but could also help to achieve long-term economic sustainability and viability,” Burger says.
Nature’s dividend Biodiversity will also be an area of focus this year following the creation of the Taskforce on Nature-related Financial Disclo- sures (TNFD) in June. “This shows that there is a clear consen- sus that biodiversity is an urgent issue, just like climate change,” Mennie says. “There is now a vast array of statistics that support this, we just need to accelerate action in the same way we’ve seen with climate.” A review of the issue led by Professor Sir Partha Dasgupta will help. His research, which was published early in 2021, looked at the economic impact of biodiversity loss. “This is an impor-
30 | portfolio institutional | December-January 2022 | issue 109
tant part of what we need as investors,” Mennie says. “We now understand that there is an economic impact from biodiversity loss as well as the moral argument. We expect there to be con- tinued traction on biodiversity.” LGIM understands the importance of biodiversity, integrating this into its investment process to meet demand. “Investors want to see how you are measuring such an impact,” Ramscar says. “People are looking to financial players to consider this as part of their investment process. “You need as an asset manager to be clear on how they are addressing, measuring and engaging on biodiversity. You can- not just lump it in with other key topics, you have to be much more explicit about it and introduce a voting policy linked to deforestation,” she adds.
It is being increasingly recognised that protecting the environ- ment is not just about the climate. “Conversations around biodiversity and water – what we might call nature-conscious investment considerations – are going to extend,” Mulligan says.
“This will take time,” he adds. “It could be a trend we see in 2022, but the integration of where climate intersects with broader environmental impacts will become more prevalent.” He points to the TNFD gathering pace, EU regulation and water being “mentioned quite a lot” in Glasgow as drivers.
Going round in circles Big threats to nature are pollution and waste. To help reduce the spread of Covid, more single-use items, such as disposable masks and cutlery, were sold around the world. Increasing urbanisation in parts of the developing world is also driving consumer demand, so making sure that less single-use prod- ucts are made, or that they are recyclable, will help build a sus- tainable future. “We also need to focus on those circular economy solutions if we are to ultimately be successful,” Mennie says. “We have a growing global and wealthier economy using more products, and one of the ways we can make that work is through circular solutions.
“There is going to be an increasing focus on challenging com- panies to make sure they have re-usable products,” he adds. “Having that transparency throughout the whole supply chain is going to become increasingly important. People are seeing that now and recognising that this is the challenge we need to address.”
The future of pension investing
The year ahead could also see the defined contribution (DC) market come “under the spotlight”, Manuel says. He points to there being “fundamental structural issues” in the way the DC market has evolved that have created barriers to
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