RI Europe 2019 - 4 ESG investor themes companies cannot ignore
By Andrew Bond, ESG Analyst at Leaders Arena
Leaders Arena partnered with RI Europe; the largest Responsible Investor conference. We coordinated meetings on behalf of our corporate clients and ESG investors. Based on these conversations and the panel discussions, we present the following key ESG themes that investors are focusing on:
Engagement: why divestment won’t work.
Climate: still dominating conversations.
EU Action Plan: leading to more clarity in the market.
UN Sustainable Development Goals (SDGs): companies need commitments and better KPIs.
Engagement vs. Divestment:
Engagement was one of the key topics discussed by investors, illustrating that dialogue with companies remains key to investor analysis. Panel speakers from the Church of England and Robeco Institutional Asset Management on behalf of Climate Action 100+, the most powerful investor collaboration in recent times, with $33tn in assets under management, discussed engagement with large oil and gas companies, and the expansion of Climate Action 100+; (which now includes an additional 61 focus companies added to the initial 100 targets). A leading representative from the oil and gas sector on the panel reminded the audience that they had been working on climate action long before the campaign began and that Climate Action 100+ had further accelerated their efforts.
Investors were also keen to enquire whether the way forward involves ever increasing engagement, or whether they should start considering divesting from companies that don’t comply with their recommendations. Engagement leads from UBS and Robeco emphasised that it is too early to break engagement with fossil fuel companies and are not considering divestment yet.
In order to further the climate debate some of the discussions suggested investors should start changing their attention from the supply side of the carbon debate, such as oil & gas, mining companies, to the demand side, such as steel makers, planes and other manufacturing industries, and airline companies.
EU Action Plan:
A lot of attention focused on the EU Action Plan on Sustainable Finance and how the proposal will impact companies. Part of the EU Action Plan focuses on creating green labels for financial products, helping to build upon the future sustainability taxonomy. The movement to more credible standards and labels will likely increase the amount of assets that are invested through funds that integrate ESG factors. The taxonomy will reduce the confusion on the part of retail investors in terms of what constitutes green investments. The Technical Expert Group on Sustainable Finance (TEG) has proposed initial definitions of Climate Transition Benchmarks (CTBs) and Paris-Aligned Benchmarks (PABs) in line with the new mandate.
There is also interest in the proposed ‘EU Green Bond Standard’ which is designed to encourage best practice in the market. Bonds that do not meet the required standards would not be allowed to be marketed as EU Green Bonds. With the growth of passive investments more broadly, many companies will be looking at the opportunity to issue green bonds; we expect these to become used more frequently by companies.
Companies engaged in conversations around the EU draft proposal expressed how all sectors should be allowed to use these funding tools to improve their climate impact. However, the approach taken so far by the TEG has been much more selective.
United Nations Sustainable Development Goals (UN SDG’s):
With the rise in popularity of the UN SDGs, many investors are optimistic about the prospect of impact investing; finding investments that have a positive effect on the environment and society.
Yet, there is also a need for companies to demonstrate real commitment to specific SDGs and to establish accountability in the company targets linked to relevant SDGs. More clearly assigned goals and KPIs helps investors track relevance and progress, and reduce the perception of SDG-washing.
Companies therefore need to continue improving their ESG communication programs as investor focus on ESG and regulation intensifies. Leaders Arena helps companies stay on top of these growing trends and maximise the opportunity to engage with investors more effectively on ESG.