Feature | ESG
Predicting the future is not easy, even for experts. At the end of 2018, I spoke to asset managers and consultants to build a pic- ture of what environmental, social and gov- ernance (ESG) themes institutional inves- tors could be factoring into their investment decisions in the year ahead. Harmful gas emissions, leadership diversity and con- cerns over plastic bottles floating in the sea were predictions our ESG experts called right. Yet one subject missing from their prophecies was that 2019 saw the arrival of the vegan sausage roll.
It landed on the UK’s high streets in branches of Greggs on the second day of 2019 and no one I spoke to saw it coming. The introduction of a meat and dairy-free sausage roll proves how difficult accurately predicting even the immediate future can be. Undeterred by this conclusion, I have once again spoken to those working with asset owners to find out what sustainability issues could be on decision-makers’ check- lists in 2020.
A NEW CONVERSATION
It appears that 2020 may not be a radical departure from 2019 in the sustainability space. Fawzy Salarbux, global head of con- sultant relations at Candriam, describes the coming year as a “well-trodden path” focus- ing on climate change and plastic. “There are a lot of themes that will run on,” he adds. “[Climate change] is a trend that is well in motion.” Emily Chew, global head of ESG at Manu- life Investment Management, is not sur- prised that a continuation of what we saw in 2019 is expected. “These things do not get fully explored, understood and resolved in one year,” she says. “There will be a con- tinuing crescendo around plastic, gender equality, executive pay and diversity and inclusion.”
Although climate change is a long-term trend the conversation around the issue will be different this year, Chew believes. “It is going to be more about the business of implementing the Paris Agreement rather than the aspirational statements that we have seen,” Chew says. “Asset owners will be looking to drive that conversation
more actively than they have over the past few years.” This means that a focus on aligning sci- ence-based targets with the Paris Agree- ment will come to the fore. “There will be an increasing awareness of what the sci- ence means and more attempts to bring that into investment decision making, both through valuation modelling and company engagement,” she adds. The issue is that targets set by the Paris Agreement and endorsed by governments include being carbon neutral by 2050, but how can that be achieved? “A lot of the low hanging fruit, especially in Europe’s corpo- rate sector, has already been picked,” Chew says. “We are talking about transformational moments here and the investment commu- nity is trying to keep up.” Another trend in the evolving climate change discussion in 2020 will be temper- ature allocation in portfolios, says Mark Lewis, BNP Paribas Asset Management’s
firing line, according to Lewis. “They have a horrendous environmental footprint with the shocking levels of water they use,” he says. “The textile industry is responsible for 20% of all industrial water pollution. That is just one horror stat that I could give you. It is a completely unsustainable industry in its current form.” The food industry is also being judged neg- atively. The deforestation associated with the industry and its use of anti-biotics in livestock make it another unsustainable part of the supply chain. “The whole ques- tion of supply chains is going to be a big topic,” Lewis says. “You cannot expect the fossil fuel industries to keep getting all of the attention,” he adds. “At some point other industries, which have essentially been having a free ride on this, are going to come under the microscope.”
KNOWLEDGE IS POWER In the sustainable investment space, data For a long time, data has been the
Achilles Heel of ESG and there is still a long way to go. Fawzy Salarbux, Candriam
head of climate change investment research. “Everywhere I go people ask me how they can calculate the temperate implied by their portfolio.
“That is not going to be easy to figure out, it is going to create a lot of work in the asset management and consultancy industries, but this is where the industry is heading and regulators are going to start looking at this. It is going to be a big, big topic in 2020,” he adds.
SUPPLY CHAINS So climate change and fossil fuel compa- nies are expected to remain in the spotlight this year, but people will increasing be look- ing at the harmful gas emissions generated in supply chains. Fashion and textiles is one industry in the
26 | portfolio institutional | December-January 2020 | issue 89
and disclosure could be another big theme in 2020, believes John Belgrove, a senior partner at Aon.
“This is where the battle ground lies,” he says, pointing to trustees needing quality, consistent and comparable data to under- stand their exposures and the direction of travel. “It is an important area,” Belgrove adds. “Like anything in investment, you want data to support your decisions.” There are independent companies provid- ing ESG data, but there has been criticism of the consistency and interpretation of the information produced. “There is a journey going on around the improvement of data quality,” Belgrove says.
The need for better quality data is not only being driven by investors wanting to meas- ure the non-financial performance of their
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
