Asset owners are determined to chart a new way forward

Sustainability commitments are changing how we invest

The sustainability commitments of last year have been turned on their heads as Europe grapples with an unprecedented energy crisis. But this will not derail the road to 2030. Asset owners are increasingly aware of climate risks, among other social, environmental and governance risks and are asserting their right to be heard.

15 Aug 2022

5 minutes

Ben Lambert
Stephanie Niven
The sustainability commitments of last year have been turned on their heads as Europe grapples with an unprecedented energy crisis. But this will not derail the road to 2030. Asset owners are increasingly aware of climate risks, among other social, environmental and governance risks and are asserting their right to be heard.

“The best laid plans of mice and men often go awry,” with apologies to Scottish poet Robbie Burns. But when it comes to achieving net zero, that line seems particularly apt.

“If you had asked me a year ago if Germany would be burning more coal this year than last year, I would have said you were dreaming,” says Ben Lambert, Ninety One Portfolio Manager for European Equity. “Yet change happens fast, and right now, energy security is more important than decarbonisation.”

Once the European energy crisis is resolved, all eyes will be back on decarbonisation and the road to 2030 will be accelerated and no less demanding. “Everyone has the same challenge - we need to reduce carbon emissions by 2030,” says Claire Curtin, head of ESG at the Pension Protection Fund (PPF).

Claire and Ben were discussing how sustainability commitments are changing the way asset owners invest at the recent Ninety One Investment Institute Forum. They were joined by co-panelists Stephanie Niven, Ninety One Portfolio Manager for Sustainable Equity and Fagmeedah Petersen-Cook, Non-executive Director of the Absa Pension Fund. The discussion was moderated by Charlotte Gibson, Ninety One’s Head of Client Management.

As stewards of capital, the panel was and is acutely aware of the responsibility that comes with charting a new way forward. “We need to be thinking about the opportunities that will present themselves on the road to a low carbon future,” says Claire. Given that the PPF is the statutory fund designed to protect members if their defined benefit pension fund becomes insolvent, taking risks is out of the question. “We are thinking about what that opportunity means. It is not about rushing out to buy expensive wind-farms. It’s more about moving existing industries that will be needed in a different way, rather than cutting whole swathes of industry out,” she adds.

Stephanie agrees that the time is right to move beyond first order thinking, which sees the development of ESG compliant portfolios as a risk mitigation measure, to one seeking opportunity. But it’s not easy. “It requires a new investment approach and new ways of thinking,” she says. ‘If we are expecting different things from our companies, we need them to be accountable in different ways and need new tools and frameworks to assess them.”

This is a major shift from past efforts, which were focused on compliance and reporting. It’s hard to imagine, but ten years ago few asset owners bothered to vote on ESG issues, whether they were related to climate change, or environmental justice, social justice or any of the myriad issues falling under the ESG banner.

Today both Absa Pension Fund and the Pension Protection Fund hold their asset managers to far greater account and employ stewardship managers to oversee proxy voting on their behalf. “Our managers were voting in ways that were inconsistent with our beliefs,” says Fagmeedah.

Stewardship managers are also taking the difficult discussions straight to the companies themselves. Reporting has also improved. Ten years ago, only a handful of US and European companies provided any disclosure on energy and water usage and carbon management. Today 95% of these companies provide ‘reasonably decent’ information, says Ben.

“Soon sustainable investing will just be investing. Sustainability is a top down trend which properly defined touches everything. Decarbonisation will be a focus in every industry, not just heavy emitters.”

The issue now, he says, is harmonizing this disclosure to improve the quality of the data provided. “Soon sustainable investing will just be investing. Sustainability is a top down trend which properly defined touches everything. Decarbonisation will be a focus in every industry, not just heavy emitters.”

While the panel agreed that the move to a net zero future could present more investment opportunities than risk, some in the audience worried that some fund managers are taking the wrong approach to ESG and that the focus on carbon intensity could result in greenwashing.

“Sustainability must be about meeting your current needs in a way that does not take away from future generations. We are consuming like we have 1.6 earths, yet we only have 1,”

It was a point the panel took to heart. “Sustainability must be about meeting your current needs in a way that does not take away from future generations. We are consuming like we have 1.6 earths, yet we only have 1,” says Fagmeedah.

Therefore, there must be a repricing of assets. “We must come up with a sustainability measure that reflects all sustainable development goals, then we will be measuring sustainability,” she concludes.

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General risks:

Investments involve risk; losses may be made.

Authored by

Ben Lambert
Portfolio Manager
Stephanie Niven
Portfolio Manager

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