Asset managers need to look at a wide range of emerging issues alongside climate change in order to develop an effective ESG strategy.
This was the view of a panel discussion at Corporate Advisers’ ESG Forum, on how stewardship can lead to a better retirement for pension investors.
While there are a plethora of different ESG organisations and bodies aimed at the investment community, looking at a range of specific themes, panellists were reluctant to single out any one body as being more important than another.
ShareAction senior research analyst, Felix Nagrawala says: “What is most significant is how asset managers and owners interact with these various bodies. Much will depend on what companies are looking to achieve.”
However he added that there was a “lot of buzz” around net zero commitments. While he says he thought it was very important for companies to take this step in committing to net zero he warned that not all net zero statement were equal.
“The devil is very often in the detail. Not all net zero announcements have the same substance to them. It is important to look at not just the commitment being made, but the content of that commitment.”
Glass Lewis vice president of research, engagement and stewardship, Andrew Gebelin said there was a plethora of different organisations, some committed to broad ESG strategies and others taking a more thematic approach. Again he was reluctant to endorse any particular organisation, but said that a lot of the industry was focused on the Climate 100 coalition and the work around the UNPRI sustainable development goals.
Sindhu Krishna, head of sustainable investments, Standard Life told the delegates that a net zero climate pledge was increasingly a focus, but the company had “ongoing dialogue” with asset managers and companies on how to evaluate progress on this and other ESG related issues.
She says: “We are building our own stewardship teams and want to hold manager to account. Using a delegated multi-manager model we are seeking information from managers as to what the critical themes are in the last few months. This is then evaluated against out own views and commitments on a range of ESG issues.”
The panel agreed that while much of the focus had been on climate change there are other emerging risks that the investment community needs to be aware of.
Nagrawala said biodiversity loss would be a “new frontier”. He pointed out that the World Economic Forum estimated that economic value generation that was threatened by bio-diversity loss amounted to $44 trillion. “This is something we have to face in the coming decades but the response being taken by the investment community is not proportionate to these risks.”
Gebelin says it was clear important for asset manager to have stated policies on climate change. “If a manager doesn’t have a policy on this I would suggest owners move elsewhere,” he says. But he says asset managers will need to develop policies on a range of other ESG issues. He highlighted the issue of human capital management, particularly in relation to supply chains.
“There have been numerous scandals around how working conditions and how employees are treated. This isn’t just an issue for emerging economies, we have had problems in the UK too, with companies like Boohoo and Sports Direct.”
Krishna points out that one of their funds divested from Boohoo following disclosure over the summer that supplier were flouting Covid regulations in some of their factories.
She says these active ESG strategies can help providers and asset manager engage with investors and pension savers. “One of the conversations we are having as a company is how we can better communicate these issues to customers, to explain the changes their pension can help bring about.”
She adds that research indicates that 79 per cent of younger savers would be more likely to to engage with pension statement if there was information about responsible investment strategies.
“Our policy is always to engage first with companies but on a whole range of ESG issue like this divestment remain an option.”
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