HUB EXCLUSIVES PANEL DISCUSSION 2022 – THE EVOLVING ESG LANDSCAPE
Panel discussion, hosted by Cherry Reynard, with:
Sandra Carlisle – Head of Sustainability, Jupiter Asset Management
Matthew Jennings – Investment Director, Sustainable Investing Team, Fidelity International
Rosie Rankin – Director, Positive Change Specialist, Baillie Gifford
The initial focus for sustainable investors has been around decarbonisation and changing the way the world uses energy. However, it is increasingly clear that investors also hold the power to change the world in other ways: to tackle biodiversity, for example, plastics or promote a more circular economy.
Matthew Jennings, an investment director at Fidelity International, says that decarbonisation and net zero remain priorities for the group because there is still a lot of work to do. He points to the recent IPCC (Intergovernmental Panel on Climate Change) report, which makes it clear that efforts to mitigate climate change need to go further.
Rosie Rankin, a Director for the Positive Change Strategy at Baillie Gifford, says that there is also more nuance in the way they look at decarbonisation. She gives offsetting as an example: “In an ideal world you wouldn’t need offsetting, but the reality is that we’ll need it if we’re going to move to net zero. Natural offsetting – planting trees – will form part of the solution, but there is competing use for that land. We’re looking at some of the scientific alternatives such as direct air carbon capture. Many of these technologies are early stage and this is where investors can play their part by providing supportive long-term capital."
New areas
However, both groups are broadening their focus. Jennings adds: “Deforestation is a new area for Fidelity. We’ve made a commitment as part of COP 26 to deforestation-free portfolios by 2025 and we’re in the process of putting together an ambitious research and engagement package to support that. That’s a new area of increased interest.
“There are also plenty of other themes: plastics, for example. We’ve been engaging with consumer goods and fashion companies to create more circular business models. There’s definitely a broadening out of the range of issues we’re looking at."
Rankin highlights Baillie Gifford’s work on social issues. The EU has recently launched its draft social taxonomy and the pandemic has galvanised governments and corporates to look into social issues.
She says: “An area we’re looking at closely is education. The pandemic has widened existing gaps in educational opportunity. We’re not thinking about it just in terms of school-age education, but also adult learning. Some jobs will be made obsolete by technology and there will be a need for reskilling. We’re looking for companies that are providing an improvement to the status quo, such as Duo Lingo.”
The data gap
The problem is that it takes time to get these new projects in place. Fund managers need to decide the information they need, engage with companies and encourage them to disclose the right data. Sandra Carlisle, head of sustainability at Jupiter, says that even for climate change, which is the most advanced area, “there’s information that we have, that we’d like to have and information that we probably don’t even know that we need right now.” However, she adds: “For most companies, we can get a lot of information if we ask the right questions and have the right dialogue. It depends on the geography, sector, how we frame the questions."
“It’s also worth noting that more isn’t always better. The real question is whether the data is helping us make better informed decisions. As investors, are we sure that we are looking in the right place and asking the right questions. Our fund managers would say in most cases having a constructive conversation with the company means that we get useful information most of the time.”
The new disclosure regimes are undoubtedly helping in getting the right information to the right people. Carlisle adds: “The new ISSB (International Sustainability Standards Board) standards are going to be incredibly helpful because they will create a framework in which we can operate.”
Engagement is crucial in getting the right information. Rankin says: “We typically see less disclosure from less mature businesses. It’s not that their practices are lacking, it’s that they haven’t developed the same policies and the procedures as larger businesses. They may not have the resources. This is where asset managers can play a role through engagement, by providing support to these less mature businesses to encourage them to develop meaningful disclosure on the information that matters.”
Jennings agrees: “One of the most popular mechanisms to ESG investors has been to exclude securities, which is not an effective way of promoting engagement and dialogue. There is a role for exclusions, but it has a limited effectiveness in driving positive change. We’d prefer a more conversational approach in the companies where we’d like to see improvement or more disclosure.”
The breadth of sustainable investing is increasing all the time, as the scope of regulation develops and new frontiers open up. Each new area brings information challenges, but robust engagement and dialogue between asset owners and companies can create a path to addressing new issues.
