Where is the value in ESG investing?

Three years ago, in the run-up to COP26, financial institutions rushed to sign up to the Glasgow Financial Alliance for Net Zero (GFANZ). A renewed focus on fiduciary duty, however, combined with concerns about the real-world impact of reducing portfolio emissions, is now prompting asset managers to rethink strategies and methodologies for net zero. Daisy Streatfield has seen the issue from both sides of the fence. In 2021, she helped set up the Net Zero Asset Managers initiative (NZAM) during her time at the Institutional Investors Group on Climate Change (IIGCC). Today, as sustainability director at emerging markets-focused asset manager Ninety One, she is grappling with how to ensure net zero remains relevant from the industry perspective. In this episode, she talks to RI editor Lucy Fitzgeorge-Parker about the heady days of NZAM’s founding, the recent high-profile departure of Baillie Gifford from the initiative, and how investors can meet the needs of both clients and the climate. Key topics also include transition finance, climate adaptation and the challenges of net zero in emerging markets.

After an autumn of devastating floods in Florida, Spain and southern Italy, the need to protect populations from the impacts of climate change has shot up the agenda for policymakers. Nature can play a crucial role in climate adaptation, from protecting coastlines from rising sea levels to slowing or reducing water run-off upstream of urban centres. In this episode, veteran investor Eoin Murray talks to RI editor Lucy Fitzgeorge-Parker about the opportunities for developing "natural infrastructure" in the UK. Key topics include the challenges of mobilising large-scale investment for nature restoration, how to ensure buy-in from farmers and landowners, and the need for policy support.

The global UN biodiversity summit delivered on the buzz – and had a huge private sector turnout. The overall outcomes, however, have been widely described as “a mixed bag” on the positive end of the scale, while many called it underwhelming. But investors did not leave Cali empty handed, with a flurry of announcements on nature transition plans, investment products, collective engagements and many discussions on scaling up private finance to help meet global biodiversity targets. In this episode, nature reporter Gina Gambetta talks to deputy editor Elza Holmstedt Pell about key developments for investors and shares insights from conversations with many of the market participants on the ground at COP16. The conversation also highlights what responsible investor community delegates thought was missing from the discussions. For example, several market participants RI spoke to thought they were too focused on disclosures.

Mining is a notoriously dirty and dangerous business – so much so that it has often been shunned by responsible and risk-averse investors. In recent years, the Brumadinho dam disaster and the Juukan Gorge scandal have provided ample evidence of the environmental and social risks associated with the sector. Yet it is crucial to the energy transition. According to the Global Investor Commission on Mining 2030, around 300 new mines will be required to supply the minerals for the batteries, solar panels and wind turbines that will power the green economy. This means investors can no longer ignore the sector, says Adam Matthews, chair of the commission and chief responsible investment officer at the Church of England Pensions Board. In this episode of The Responsible Investor Podcast, he talks to RI editor Lucy Fitzgeorge-Parker about how investors can work together and with the mining industry to ensure that the ramp-up required for the energy transition is managed to minimise the impact on workers, communities and nature. With more than 10 years’ experience of engaging with the industry, plus first-hand knowledge of mining in some of the world’s most remote and dangerous regions, Matthews is uniquely qualified to comment on a key challenge for ESG investors.

When Responsible Investor talks to investors about transition finance, capital expenditure almost always features. Folksam’s chief economist Marcus Svedberg told RI earlier this year that studying capex flows is a good indicator of where companies are going, and that ideally “you want to be overwhelmed by how much they are investing in new technologies, technologies of the future”. And there are some positive signs. For example, so far in 2024, companies have reported around €250 billion of taxonomy-aligned capex, up from €191 billion in all of 2023. But while a company’s investments, or plans to invest, in transitional and decarbonising activities will be crucial to analyse whether or not it is transitioning, it is looking unlikely that investors can expect to be overwhelmed by a large number of their holdings. For example, just 1 percent of the 1,027 high-emitting companies assessed by the Transition Pathway Initiative have set goals to align capital expenditures with decarbonisation targets, according to the investor-backed body’s latest State of the Transition report. In this episode, RI deputy editor Elza Holmstedt Pell and feature writer Paul Verney discuss transition finance and capex based on insights from recent investor conversations. Additionally, Elza and RI reporter Fiona McNally give initial updates from the first day of discussions at the PRI in Person conference in Toronto. [TIME STAMP 24:05]

Transition finance is the fastest-growing area in sustainable investment. Over the past two years, the amount invested in transition-focused funds in Europe doubled as inflows into traditional ESG funds stalled. The appeal of transition finance is obvious. It offers sustainability-minded investors access to a broader range of sectors and companies than “pure green” strategies, while at the same time potentially achieving more real-world decarbonisation. But what does transition finance actually involve? Is it compatible with net-zero goals? Which industries, instruments and regions offer the best opportunities for returns? And, in the absence of regulatory clarity, do investors in the segment risk being accused of greenwashing? In this episode, RI editor Lucy Fitzgeorge-Parker discusses the rise of transition investing with Jenn Hui-Tan, chief sustainability officer of $800 billion manager Fidelity International. Topics covered include the hunt for high-quality data, how to assess corporate transition plans and investment opportunities in Asia, as well as the concept of a Just Transition and the shift in focus towards policy engagement.

The UK’s Financial Conduct Authority (FCA) has put simplicity and consumer testing at the centre of its efforts to roll out fund labels to improve transparency of sustainable investment products. For managers that are in the middle of applying labels to their funds, the process has in many ways proved more challenging than first expected – so far, only two funds have publicly announced that they have secured a label. The FCA has recognised this, and this week pushed back the deadline for compliance. In this episode, Responsible Investor senior reporter Dominic Webb talks to deputy editor Elza Holmstedt Pell about how investors are grappling with the process and expectations for the months ahead. Drawing on insights from conversations with key UK investors, the discussion delves deeper into the strategies of early movers, key challenges in applying the labels, but also why many investors, broadly, are happy with the FCA’s approach.

After two years of rising commodity prices, surging energy sector profits and intensifying anti-ESG rhetoric in the US, it is easy to get the impression that investors are losing their appetite for sustainability. But industry veteran Lee Clements, now head of applied sustainable investment research at FTSE Russell, says reports of the death of ESG investing have been greatly exaggerated. In this episode, he talks to RI editor Lucy Fitzgeorge-Parker about the numbers behind the headlines, looking at how fund flows have evolved over the past four years, which strategies and sectors have proved most resilient, and why investors should welcome the end of the "ESG hype". Key topics include the outlook for transition finance [time stamp 14:01], how sustainability funds traditionally fare at times of market meltdown [24:00], and the sustainability case for tech stocks [26:58].

Fast fashion’s climate issues get little investor attention, with household names largely absent from collaborative engagement initiatives and stewardship reports. This is despite the flurry of challenges associated with the fashion industry, which produces huge amounts of waste and is responsible for an estimated 8-10 percent of global emissions. But with an increasing regulatory focus on greenwashing and supply chains, as well as the controversial expected IPO in London of instant fashion giant Shein, the sector’s sustainability issues could rise up the agenda of investors. In this episode, Elza Holmstedt Pell and Gina Gambetta discuss why fast fashion is struggling to decarbonise and – drawing on insights from market participants – outline examples of what investors are (or could be) asking of their holdings in the sector. [Time stamp: 01.17] Also in this episode, Lindsey Stewart, Morningstar Sustainalytics’ director of stewardship research and policy, talks to Elza about his observations on asset manager behaviour in the 2024 proxy season, and gives his views on recent stewardship developments by US investment giants. [16:05] Finally, Gina sits down with RI features writer Paul Verney to talk about ESG proposal trends at AGMs this year – which new topics have emerged and how have they fared?  [29:31]

Exxon Mobil is taking legal action against activist investors, the UK has relaxed the rules for firms looking to list in London, and companies are holding their annual meetings behind closed doors. For Jen Sisson, the new CEO of the International Corporate Governance Network (ICGN), these developments are all part of a worrying erosion of shareholder rights in multiple jurisdictions around the world. In conversation with Responsible Investor's editor, Lucy Fitzgeorge-Parker, she explains how and why ICGN is pushing back against this trend, the issues with dual-class shares and virtual AGMs, and why good governance is key to tackling environmental and social issues.