With RI Europe in full swing, here’s a flavour of some of the key points made on the first day.
“The economy is a sub-system of the biosphere,” those were the words of Per Bolund, the first biologist to be Markets Minister in Sweden – making the point that there is absolutely no conflict between sustainable and financial goals. Mankind, he argued, needed to stop acting like children and more like a “shepherd of the planet”.
His government, he told the 500-strong audience in a keynote address, wants to be a global role model for sustainable development leadership. “It’s too late for excuses. We need to start moving and reduce emissions for sustainable development at a global scale.” He focused on the AP funds’ work on transparency around carbon emissions, saying for example that AP6 is undertaking a climate analysis of the unlisted companies in its portfolio. And he said there is no evidence at all that Sweden’s own carbon price – the highest in the world – had had any adverse effect on the economy.
Dominic Emery, VP, Long-term Planning and Policy at oil giant BP, spoke of the role of the Institutional Investors Group on Climate Change (IIGCC), the European investor forum. The IIGCC has, he said “helped us to think more deeply” about climate change issues – as had the Aiming for A shareholder resolution process. “It’s part of a journey. A thoughtful [shareholder] resolution can make a lot of difference,” he said, adding: “There is only one direction of travel.” Asked what he thought would happen to carbon prices as a result of future regulation and renewables, Emery said the company was already working with an “internal carbon price” in a bid to make the firm more energy efficient and reduce its carbon emissions. He defined that price at around $40, which was much higher than what carbon emissions were trading on the EU Emissions Trading Scheme. “It’s not for us to decide what the carbon price ultimately will be. That’s for the markets. But it’s clear that it has to rise considerably from its current level.”
Speaking on the same panel, Ewald Stephan, Chief Investment Officer of the €2bn Protestant Church pension fund Verka, said his scheme had recently done three engagement campaigns, one with a sporting goods producer whose workers in Asia were being paid less than minimum wage; one with a large bank which has suffered reputational risk recently; and finally with issuers of emerging markets sovereign bonds over human rights.Julia Kochetygova, Senior Director, Product Management at S&P Dow Jones Indices, floated the idea of a green Sharpe Ratio – referring to the way to examine the performance of an investment by adjusting for its risk.
Elsewhere, Mark Chaloner, Assistant Director of Investments at the West Midlands Pension Fund, said he thought responsible investing was moving to the mainstream. “If you consider that we now have some 1,300 signatories to the PRI (Principles for Responsible Investment) and 200 of them are asset owners, I think it’s clear we’ve made a lot of progress.” His fund has started taking ESG issues into account during stock selection – and joined the LAPFF (Local Authority Pension Fund Forum) and was involved with the Investing4Growth initiative.
Remy Briand, Global Head of Research at MSCI said many investors continued to sit on the ESG fence – unlike Swedish pension fund AMF, which recently allocated its entire equity portfolio to an index that had an ESG component.
Janice Turner, Co-Chair of the Association of Member Nominated Trustees (AMNT), whose Red Line project is trying to get UK pension schemes to do ESG integration, said: “If you’re just letting companies do whatever they want to do, you are not providing the proper safeguards…For example, if you believe that board directors are being overpaid, you must realise that your money could be better spent otherwise.“
Frederic Hoogveld, Investment Specialist at Amundi, began his remarks by noting that the French asset manager’s low-carbon index products, which it had developed with MSCI, had attracted €2.5bn in assets.
Francois Passant, executive director at Eurosif, in a plenary on the EU dimension of responsible investment, noted how sustainability was barely mentioned in the bloc’s ambitious Capital Markets Union plan or the criteria for the new European Long Term Investment Fund (ELTIF) structure.
Philippe Desfossés, chief executive officer at France’s ERAFP, said he wasn’t sure that ELTIFs were the anwwer for the “size of the issue”. “The real issue is lengthening the duration of large, institutional pension funds. Funds dedicated to indivuals or small investments are not the right answer.” He warned that the European Commission operated in silos and it was difficult to get consistency. And he argued strongly that investment consultants should let their trustee clients know that they will be sued if they don’t address these issues: “Just tell them.” Turning to green bonds, he was sceptical as to how they help decarbonisation – though he would consider some form of legally ring-fenced structure.