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Supplements » ESG Report Spring 2020

ESG roundtable: One shot at refinancing a fit-for-purpose economy

Funds Europe – How do you think ESG investing should and will develop over the next 12 months and are you optimistic or pessimistic on this front?

Arkko – I am highly optimistic that ESG investing is definitely not going away, even though we have a serious crisis. Compared to the financial crisis and what happened after that, the emissions came back, but this time it’s different now that people, investors, companies and governments understand the urgency to react to climate change is greater than before. 

From our side over the last year-and-a-half, we have been really active in increasing our ESG integration to our passive products and not just active investments, and we’ve been launching several ESG ETFs in different markets – the last being in the emerging markets. In that way, taking a more holistic ESG view, so not just concentrating for example in direct equity holdings but in all asset classes, I see that trend increasing as well. The focus has really been on the climate, and it should be there, but the coronavirus pandemic has brought social issues into the spotlight that are here to stay. So, we have several topics to think about, but I am also highly optimistic that ESG investing will also become mainstream outside Europe soon. 

Nummela – I’m optimistic as well. I would reflect back to the panel that you had 12 months ago – you had great institutions present that have been on the forefront of big climate engagement wins with fossil fuel companies, for example. What has happened in this short period of time has been unprecedented – major things you would have not even been able to think of 24 months ago. We now have major oil companies with net-zero 2050 targets! If you think that’s the speed, we are in for something amazingly good. I think in the next 12 months asset owners in particular will be able to catch cheats much more easily and greenwashing will not go down well. Innovation is happening, so there are a lot of things to be very positive about. 

Pedersen – Even from US clients and pension funds, not just California but New York City is very progressive, and many of the big US clients who we are talking to have moved a lot within the last 18 months in this area, so it has also changed in the US. You can discuss whether all of the funds that claim to be ESG-compliant really are, but at least money is going into funds that claim they are ESG, and we can always clean up afterwards. 

O’Hara – There are reasons to be optimistic. Coming into the Covid-19 crisis and seeing the reaction of the UK government – and the idea that this Conservative government could embrace almost nationalising our economy in order to make sure that people got through this and that there was going to be an economy at the end of it.  

The way some companies have repurposed is also encouraging. This period is almost a model for how governments really need to respond to the climate crisis in terms of policy, intervention regulation and urgency. Swift and decisive policymaking needs to happen. The way the public has reacted to it is also encouraging – we have largely observed the lockdown and looked out for each other. Hopefully many of us we have taken a step back and possibly looked at how we lived our lives prior to the lockdown – how we consumed, how we used our cars and where we spent our vacations. 

Covid-19 is almost a model, a practice for some of the things that need to change going into the future, so there are reasons to be optimistic. The way in which nature has recovered during this period is also evidence that if our economies do change and we do make some adjustments and sacrifices, there will be some payback.

Millet – Over the next 12 months, I am optimistic about the development of ESG as an engagement and investment objective, which is a way to say that I’m not so optimistic on the achievements of the goals which ESG is willing to address. We believe the market will have a very strong focus on climate – a lot of attention which so far was on global ESG ratings and thematic objectives, or SDG-aligned ones, will move to climate alignment. 

I am also optimistic that we will finally achieve a greater level of comparability between the ESG approaches. I see a lot of progress in the disclosure by companies and the data and model-based approaches by the big data providers. Just look at the increasing number of companies which are committing to report under the Science-Based Targets initiative for their ongoing climate emissions, which have approved science-based targets for 2 degrees or below. It’s very encouraging, so progress of disclosure is a source of optimism and so is progress of data. 

Regarding a sea of change, it’s a bit more mitigated because there are mass stimulus plans everywhere after the Covid-19 crisis, so it will be an excellent test of the capacity of policymakers to show they can orient investments to new growth areas like renewable energy, energy efficiency, smart cities, infrastructure and so on. 

Maybe it’s too early for them to massively reorient the investment because they did not prepare for it. They were caught off-guard and unfortunately by the time the crisis hit, the only immediate option was to implement plans that were prepared before the crisis. 

But as European Commission president Ursula von der Leyen said, the European green deal is the new growth strategy for Europe, so hopefully the policymakers will demonstrate capacity to reorient investments there, and we are talking about a €1 trillion investment plan. The good news is the stepping up of the policymakers’ initiative in Europe, and the delivery, because now we are at the delivery stage of the EU sustainability action plan of 2018. 

But we must not be naïve – especially on the climate issue – and we must be extremely vigilant of complacency because the stress for very short-term stimulus will probably put a lot of pressure on energy reorientations.

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