Q What are the ESG investing trends to watch in 2020?
The focus on issues such as climate change, active ownership, transparency and reporting, and sustainability-related regulation is intensifying. That’s putting asset owners under more pressure to ensure that their allocations properly integrate ESG considerations, and that engagement with companies and other entities is conducted in an effective and coordinated way. This has obvious implications for how we operate as an asset manager.
Q What are the key regulatory developments to be aware of?
The EU’s work on the Sustainability Taxonomy will have broad impacts on Europe’s investment and business communities, and in the long-term will likely have global effects. By establishing a common language, the Taxonomy will provide much-needed clarity for asset owners, investors and other parties when discussing sustainable products and practices. Also, the UK Stewardship Code is being updated, which will raise the bar for ESG communications. Finally, Europe’s Shareholder Rights Directive will put more attention on factors that influence the long-term stability of companies, which clearly include many ESG considerations.
Q What are your clients focusing on?
Many clients regard active ownership as increasingly important. I think coordinated active ownership can be much more powerful than divestment, and it should bring investors and companies closer together. Of course, climate change will likely be the issue of 2020 for investors. In the fight to limit global temperature rises to 1.5-2°C, asset owners have a crucial part to play.
Q You mentioned divestment. How should investors approach the oil & gas sector?
Part of the investment community continues to concentrate on divestment from fossil fuels. Our approach is to think about what is needed to achieve a responsible and just energy transition. Traditional oil & gas businesses will have a role to play in that. We think it’s important to engage with them to make sure that there is a just transition, and that they have strategies in place to decarbonise and realign their business models for the new world of low-carbon energy production.
Q What should investors be prioritising in 2020 from an ESG perspective?
Industry-wide, we need to continue improving ESG integration into investment strategies. That will facilitate active ownership and advocacy, which is vital because the conversation has moved on from ESG just being about data and transparency. Investors are looking for real action from companies. They want to see what their strategies are for addressing ESG issues; and how executive compensation, for example, is aligned with incentivising sustainability targets.
Q What will be your ESG focus in 2020?
Across every investment team, deepening ESG integration will be a priority. We will also be spending more time on engagement and advocacy, both via the ESG team and the investment teams.
Another important area for us will be dedicated sustainability strategies. Last year we launched two: Global Environment and UK Sustainable Equity. That has given us a strong foundation and a growing track record of managing these kinds of investments. These launches reflect a broadening focus on offering investments with impact that address the sustainable development goals, which is a major theme for our clients. We have many years’ experience of investing with impact in Africa, but the opportunities to do so continue to widen – particularly given the global need to facilitate the green economy.
Q On that subject, what climate-change initiatives will you be working on?
We’ll again be working closely with our clients on engaging and reporting on carbon. We are also committed to reporting against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in 2020, making sure that this initiative penetrates the entire organisation, from the leadership team to the investment teams, as we work to facilitate decarbonisation. TCFD reporting will be a challenging task for the investment community, but a crucial one that will move forward our collective understanding of sustainability risks and opportunities at the company level.
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