is managed within portfolios. At one side of the value chain, poor livestock management, animal rights abuses and excess use of livestock brings about ongoing risks of new infectious diseases cir- culating or anti-microbial resistance increasing. On the other side, survival rates were worse among those with poorer health, nutritional deficiencies and obesity. Whilst the impacts were greater for those from more vulnerable socio-eco- nomic backgrounds. Managing portfolios is about understanding the damage irresponsible business and behavioural practices can cause and working with issues not in silos but as interconnected ESG factors that have an impact on each other. Lees: We must remember that as we take away the natural habitat of a lot of animals and get rid of biodiversity, combined with grow- ing human population and urbanisation, we increase the preva- lence of disease. That is, of course, compounded by a warming world as, for example, insects are migrating out of the tropics.
PI: Are asset owners considering biodiversity in their investment decisions? Firth: Biodiversity was once the elephant in the room, but investors are realising the economic and financial impact that such losses could have.
There is an interconnectedness between climate change and biodi- versity through deforestation, water stress, soil erosion, etc. Biodi- versity is necessary to mitigate effects of climate change, but then climate change also leads to loss of biodiversity. The issue is that it is seen as an obstacle for investors because of a lack of understanding of what biodiversity means and how it is measured and monitored. There is talk of the Convention on Biodiversity in China this year being a tipping point like Paris was for climate change. The chal- lenge is how we look at incorporating biodiversity into investment strategies and how we understand that investment case. Biodiversity was picked up as one of our engagement themes last year, but as it is such a broad and wide-ranging topic, where do you focus? The initial focus of our engagement was on deforestation. There is the expectation from the regulators and our stakeholders for us to report more on sustainability and biodiversity across port- folios, but it is challenging to get that data. Burger: A key focus of ESG is climate change, but there is more interest and sophistication in the discussions we are having around biodiversity. It touches every sector, just like climate change, but, I’d argue, even more so. Every company has an impact on biodiversity. It is a huge topic, so where you hone your interests and focus is key. We have talked about externalities and how external costs can quickly become internalised. It does not feel that it is happening, but longer term, the regulation coming down the pipe will spur the market on.
The data sources and scores that we were talking about are impor- 12 March 2021 portfolio institutional roundtable: Responsible investing
tant for understanding and recognising potential areas of contro- versy or opportunity, but they are not the be-all-and-end-all. Three or four years ago, David Attenborough spurred the debate for biodiversity within our water systems. More of that will help elevate the issue to become a key area of focus. Climate change is still the primary ESG topic, but it may be trumped by biodiversity longer term as we get a better handle on climate change.
PI: Will the new regulation coming in for larger schemes reduce their climate risk? Gamon: From October 2021, all £5bn+ pension schemes and mas- ter trusts, irrespective of their asset size, will need to have a gov- ernance process for managing climate risk. Trustee boards need to get to grips with what their portfolio looks like in terms of carbon risk by doing scenario analysis and setting targets for how they might reduce that risk. The regulations will apply to £1bn+ schemes from October 2022 and the current expectation is that the government will extend the requirements to all schemes from 2024. That is getting trustees of the UK’s pension schemes thinking hard about what is in their portfolio. We are already helping our clients to look at their carbon emissions and think about the actions they need to take, which is the important bit, and challeng- ing the investment managers who are not taking this risk seriously enough in the pooled funds that these trustees are using. Then asking questions about engagement and all the good stuff we talked about on stewardship. So, lots of change expected. Consideration of biodiversity risk will follow as a natural consequence from this focus on climate change. Llewellyn-Waters: We align our clients’ savings to decarbonisation on the basis that the planet is a key stakeholder within our invest- ment framework. We go to great lengths to demonstrate that align- ment to satisfy the regulatory consultation that we have just seen, so we have been doing it for many years and have an annual impact report that evidences these recommendations. From a pooled vehicle perspective, we evidence each holding as having individual alignment with net zero emissions, for instance, and all the reporting recommendations, especially regarding phys- ical risks. We apply the same standards to sustainability reporting that we would expect from financial reporting. We have a fund that is designed to do exactly that. We have been doing this for a long time and we think the industry will follow. Burger: We have to rely on external data providers because that is what a lot of our clients are asking us to produce, but physically, the biggest challenge is around engagement reporting. We want to be open and transparent. I have been reporting publicly on Newton’s stewardship activities since 2005, but not consistently reporting our engagement outcomes. That is the trickier element and I want us to be genuine with our reporting and the claims that
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
