The Covid crisis has created an opportunity to reset parts of the economy and “build back better” according to a leading asset manager.
Speaking at Corporate Adviser’s Sustainable Pensions summit, Nest’s head of responsible investment, Diandra Soobiah said the current crisis as brought into sharp focus a number of concerns.
Nest, the largest AE pension provider in the UK, incorporates an ESG approach as a core part of its investment strategy. Soobiah says the firm believes this will enhance long-term risk adjusted returns.
The economic shut-down in many parts of the world has had a marked effect on carbon emissions and air quality. Soobiah says as economies restart this creates an opportunity to create a ‘greener’ recovery.
She says: “We have been very consciously managing climate-related risks for members. This crisis has created impetus for investors and policymakers to come together and support the move towards a greener economy.”
As she points out businesses and consumers have changed their behaviours, which has led to observations that fossil fuel demand may have peaked. The collapse in demand for fossil fuels has in turn placed many smaller oil and gas companies under significant financial pressures, creating an opportunity for investors to start discussions on how they transition to a lower carbon environment.
“There is also the need to talk to policymakers to ensure money isn’t ploughed back into an unsustainable sector but is instead used to support sectors that will help provide solutions to climate change,” Soobiah says.
While climate change remains a key part of Nest’s stewardship and engagement activities, it isn’t the only issue that has come to the fore in the recent health crisis.
There has also been a renewed focus on labour issues: be it the availability or not of appropriate PPE (personal protective equipment) to job security and employment practices.
Soobiah says: “Looking ahead this will continue to be important issues across all sectors. In the past health and safety records may have been seen as an issue in the mining and extraction sectors. Now it will be a concern form companies across all sectors with the potential for reputational damage if they don’t consider this seriously.”
Nest says it actively works with companies to try to improve standards on issues like climate change and workforce practices.
Soobiah revealed that the company has recently been in dialogue with a number of major companies, including Barclays, Total SA and Amazon voicing concerns about some of these issues.
Other issues – such as the complexity of supply chain, single use plastic, food security and the use of antibiotics may all be identified as potential ESG risks going forward, she says.
Soobriah adds: “Many companies will feel the effects of this Covid pandemic, long after the initial health crisis has ended. When looking to rebuild our economy there must be a focus on the resilience and sustainability of business models and the stability of employment structure and environmental impacts.”
She adds: “This is about more than risk adjusted returns on individual pension pots. We are looking at the broader picture. Our investors may have their money with us for 50 years we want to ensure it helps build a world in which they can enjoy their retirement savings.”
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