Deeper dive on tackling climate change and ESG

Key takeaways from the Access Ninety One session held as part of the Investing for a world of change conference.

7 Dec 2020

3 minutes

Deirdre Cooper
Be wary of those who oversimplify sustainability analysis and scoring

It’s impossible to summarise in one number whether a portfolio is aligned with the net-zero goal. That’s why we have a sustainability scorecard approach at Ninety One. More broadly, ESG/sustainability scores are never the end-point – they are the starting point for deeper research and analysis. Our own scorecard is a tool that helps us ask the right questions.

New regulations are starting to clean up sustainable-investment labelling…

We are at last getting proper standards in place as to what constitutes sustainable investing. To date, many products and strategies labelled ‘green/sustainable’ have not done what they said on the tin. The EU Taxonomy is the key legislation here. It does two things:

  • Prevents funds from claiming they deliver environmental benefits when they aren’t genuinely investing positively for environmental change
  • Channels capital towards companies that are helping to address climate change
…but don’t expect sustainable-investing frameworks to be perfect

The speed at which legislation is being pushed through tells you we are running out of time. We don’t have the luxury of debating for the next decade how to get the perfect system. It’s difficult, but there is no alternative but to do it fast.

Don’t forget about strategies that integrate ESG well

There’s a lot of focus on sustainability funds. But it’s important that we don’t forget strategies that are not specifically ‘sustainability’ strategies but that integrate ESG well. There is a lot more we can do to integrate ESG into regular strategies to improve the quality of fundamental analysis – not just to price ESG-related risks but also the opportunity set. As we clean up the labelling of ‘green/ sustainability products’, we must make sure we don’t ignore a solid ESG-integration strategy that is making some type of positive impact.

Targeted, focused engagement works best

As active investors committed to engaging with companies to try to effect positive change, you have to be careful you don’t start ‘chasing numbers’ – prioritisation and focusing on fewer initiatives is important. That way you have a stronger case to say you contributed to a positive outcome.

It’s important to remember that active engagement does not fit with all strategies. What matters is that investors understand a strategy’s approach to active ownership and engagement.

Investors are getting confused about ‘impact’; but they want to know if they’re making a contribution

The growing use of the world ‘impact’ is causing confusion. But increasingly, investors want to see what contribution their investments are making. So it’s important we start showing the full picture of the investment return, including impact. We are moving to a world where we should be able to identify, and ultimately report on, the impacts of our underlying investments – both negative and positive ones. If we can get there, the purpose that our industry will have is enormously exciting.

For us, some ‘decarbonisation’ sectors are too early-stage to invest in

We have spent a lot of time researching the decarbonisation of the food chain, as well as of the hydrogen economy and the decarbonisation of steel and heavy industry. In the long term, these will be very important markets. But we* haven’t invested in these areas yet. The world is at a nascent stage of working out how we get to a low-carbon agriculture sector.

In transitioning to a more sustainable economy, we must take everyone with us

We have a decade in which to do a lot very quickly. And we must do it in a way that brings the whole world with us. A lot of the world is still getting out of poverty, and we can’t hamper that in any way. Achieving an inclusive, sustainable future will be incredibly challenging. But at least we now have the right players at the table.

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Authored by

Deirdre Cooper
Portfolio Manager

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