The 11th annual Responsible Investor (RI) Europe Conference, held June 5-6, 2018, showed a marked departure in ESG themes and focus from previous years. Compared with prior sessions, there was a strong shift and a coming of age in the ESG movement. For example, the title for the keynote plenary of the RI 2018 Conference was aptly called “Action Speaks Louder Than Words.”
The mindset permeating through sustainable finance policy makers, practitioners, and investors is that of action and implementation. One example that highlights this call for implementation is the lack of breakout sessions regarding ESG data, which, in previous years, has been a prevalent and frequently discussed topic. In multiple previous RI conferences, topics centered on data consistency, data coverage, and data developments were commonly found on the agenda. In fact, one panelist from an asset owner exclaimed, “Let’s stop asking for perfect or more data. The data is good enough, and we need more action. It’s the next logical step.”
What is now evident to many attendees is that the drivers for this shift in mindset and heightened sense of urgency for sustainable investing derive from the following.
- The backdrop of a political shift signaling a retreat to nationalistic priorities, shunning global issues such as ESG. There is a sense that ESG participants need to make sustainability a real part of public discourse sooner rather than later and show how it can be a driver of sustainable economic success. Part of that sentiment stemmed from the U.S. withdrawal from the Paris Accords, along with the subsequent U.S. Department of Labor memo. It became evident that time is not a luxury and that ESG participants need to get to work and show the tangible benefits of ESG.
- Task Force on Climate-related Financial Disclosures (TCFD) recommendations have been out for one year, and since the launch of the final report, hundreds of organizations have been working on disclosing climate-related financial information, and a myriad of resources are being developed to support them in the process. In May 2018, the TCFD and the Climate Disclosure Standards Board (CDSB) launched the TCFD Knowledge Hub, the first online platform dedicated to the latest resources, tools, and insights on their recommendations. Policy makers and initiative organizations have done their part and now practitioners need to start implementing.
- The European Commission has confirmed its first four legislative proposals to spur sustainable finance in the region, covering green definitions/taxonomy, investor duties, retail investing, and benchmarks. At the 2018 conference, there were more policy makers than ever speaking as to what regulators can do to move quickly on implementing financial measures to tackle climate change. The desire is to complete as much as possible within the current political cycle in order to avoid political regime shifts that are not favorable to ESG.
In reference to the benchmark proposal of the European Commission’s legislative proposals, the topic has quietly risen up the agenda, and the European Commission has confirmed that it will use a delegated act to create a new category of benchmark. There will be two benchmarks, the first will be a conventional low-carbon benchmark aiming to decarbonize standard benchmarks by selecting stocks with lower emissions. The second benchmark will be more ambitious and will seek to meet the Paris Agreement whereby a company’s carbon savings outstrip its carbon emissions.
Another dominating theme was the recent guidance on ESG by the U.S. Department of Labor’s field assistance bulletin. Multiple panelists (including Anne Simpson, Investment Director of Sustainability at CalPERS) agreed that the memo should not be viewed as a doom and gloom scenario for ESG, but as an opportunity to incorporate more discipline, analysis, and documentation into ESG investing that will ultimately help propel it into the mainstream.
In our previous blog, we also highlighted that the Department of Labor’s bulletin serves as an opportunity for analysis-driven ESG investing that strikes the right balance between integrating ESG issues and empirical results.