As RI Europe 2015 moved into its ‘Matrix’ breakout sessions, here’s a few highlights…
In a deep-dive panel looking at engagement for equities investment, titled ‘integrated ownership strategies’, Jennifer Anderson at the Pension Trust in the UK, which outsources some £7bn in assets to third party fund managers, said they saw two types of engagement: One: voting and engaging for good stewardship and looking at reactive company risks. Two: engaged ownership and active involvement that informs investment decisions: “Some fund managers see no value in it, others are very innovative. We appoint investment managers that are engaged owners: and we can now better identify those that have thought about this and can demonstrate value over the long term.”
Alex van der Velden, Chief Executive of Ownership Capital said part of the problem on ESG issues was not necessarily that pension funds didn’t want to look at them, but that they had inherited an ecosystem that wasn’t built to do so: “Most fund managers’ processes were not made to capture extra-financial info. Time horizons are also a problem if you are worried about losing your mandate each year: that’s not good for a long-term issue like climate change.”
Van der Velden said size of stake was not the biggest issue for investors when engaging, but preparation and knowledge was vital: “You have to look at how ESG risks play into the long-term strategy of a company and then make it real for them. That way you make yourself a potential partner not an adversary, and you have a conversation. Companies tell us that mainstream portfolio managers don’t these questions, whereas we tell companies we plan to invest for 10 years.”
On the real estate asset panel, Nils Kok, CEO and Co-founder of GRESB, the real estate manager benchmark, noted that 81% of European electricity consumption is via real estate, but said it doesn’t get the attention it deserves in the carbon investment debate. Barriers to take up, he said, included short-termism and a lack of appetite beyond Class A, high-end buildings. He noted, however, that by 2020 all new construction needed to be near zero net emissions by 2020. Ari Frankel, Director of ESG Strategy, Real Estate at Deutsche Asset & Wealth Management, said the same rules would apply in California. Pushback, he added included whether tenants would pay higher rates for environmentally friendly, which he said was being worked around by some investors via specific green leases. Kok said GRESB would soon release an infrastructure version of GRESB, and also announced at the conference that it had put together the first Green Bond guidelines for real estate with the International Capital Markets Association (ICMA), published on June 2.Nicky Amos, programme director at the Business Benchmark on Farm Animal Welfare, announced a new investor coalition with £980bn of assets under management would engage with companies who are on the lowest two tiers of its benchmark of around 90 companies. The coalition involves Aviva, BNP Paribas, Coller Capital, Ecclesiastical, NEI, Rathbone Greenbank and Schroders. It will engage with companies which are at the bottom of the Business Benchmark on Farm Animal Welfare and get them to account for their performance in the benchmark. “It will be a sign to large multinational food companies that investors care,” said Amos.
The event also saw the soft launch of the Farm Animal Investment Risk and Return (FAIRR) initiative set up by investors for investors to help them incorporate animal welfare considerations into the investment process, give insights into the industry and plug knowledge gaps.
The drought in São Paulo in Brazil was highlighted in a breakout session on water and natural capital – with fears one of the world’s largest city’s faces running out of water in the very near future. As Matthew Diserio, President Water Management, said, water is the resource that is defining the 21st century, as cheap oil was in the 20th. Moderator Cate Lamb, who heads CDP’s water project, revealed the environmental data body’s staff in the city are considering having to leave the city.
The last few weeks have seen “an incredible amount of momentum” on climate change – on the company side, the investor side and the research side. That’s the view of Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IGCC). She was speaking as scientists announced a new Apollo climate programme, and said: “It all seems to be happening.”
AP2 is now looking at the utilities sector in the same way as it looked at coal, said Christina Olivecrona, Sustainability Analyst at the Swedish state fund. She pointed out the fund ran its first carbon footprint back in 2009 – and again in 2014. And, while it’s a good exercise, it’s “frustrating” because it is difficult to tell the meaning of the results that you get. Turning to the Aiming for A shareholder resolution initiative (AP2 was a co-filer at Statoil), she said the overwhelming shareholder support “is telling us something”.
Jan Willem de Moor, Portfolio Manager for Euro Sustainable Credits at RobecoSAM noted that in the five years that his firm had relied on ESG integration, the portfolio had showed outperformance. Sevinc Acar, Head of Beta Investment Grade Credits at Dutch pension investor PGGM, said that while her firm could not speak of “outperformance,” it was not costing PGGM money. Asked why companies should take the ESG approach of bond investors like RobecoSAM and PGGM seriously, both de Moor and Acar said simply: “It’s because they need funding.”