What ESG and sustainable investment initiatives are you undertaking?
There is a huge amount going on at the moment. Not least, we will be having an election in the UK this year. So for us it is vitally important to make sure all parties – as we engage with all of them – understand the importance of sustainable finance, what they need to do, and what we would like them to do.
But also, make sure a core priority is getting private capital into the sustainable transition. What we hear from our members all the time is this huge amount of capital they have and a willingness to invest in sustainability issues.
So whether that is through companies creating sustainable products or how infrastructure relates to the UK’s transition, there is a huge amount of capital out there looking for a home.
So what then is your biggest challenge here?
The challenge is that the UK has to be a good place to invest. So, over the coming months, we will be working with all the parties to build investor confidence. We will offer specific policy proposals that need to be put in place to make sure the UK becomes a top priority investment destination. We have to be the home of the latest innovative companies.
On the energy side, it will wean us off Russian oil and gas, and create home grown renewable energy. It is also about tackling the barriers to investing in the UK, such as the planning system, which is slow, and the energy grid, which sometimes takes 15 years for a project to get connected to.
If we can start to address some of those, which are more regulatory issues, then we can start unlocking some of that private capital into the UK.
How many marks out of 10 would you give the government in terms of their pursuit of pushing sustainable investment and finance?
It has been a game of two halves. The first half was quite positive. We saw the UK become the first major economy in the world to commit to net zero, which was an incredible achievement under Teresa May.
We saw Boris Johnson host COP26 in Glasgow [in 2021] with a host of important commitments made by the UK. That was the high-water mark of the UK’s commitment to sustainability.
Unfortunately, in the last year or so we have seen the UK backtracking on its sustainability commitments. That has been a real disappointment to investors. It has had a corresponding impact on the number of people buying electric vehicles, which has fallen, and will see less private capital going into creating the infrastructure for those vehicles.
So it is a mixed scorecard. What we want to see is the next government, whoever it is, to be considerably better than we are right now. We have a huge distance to travel just to keep up with where we need to be. And if we want to be a world leader, we have a long way to travel.
We could, and should, be a world leader. Although, we cannot be a leader in everything: we have to think about the top four or five industry areas that we will lead the world in as it transitions to a sustainable future.
Where we have the opportunity to be that leader is in financial services. We should be aspiring to lead the world in financing the transition.
You mentioned Rishi Sunak reneging on the government’s climate change policy and its targets, which must be particularly disappointing.
It was a huge disappointment. It left many investors and corporates feeling let down. It felt like we had been marched on a journey and then let down at the last minute.
In order for government policy to have the effect of driving capital and attracting businesses to the UK there has to be a deep sense of trust that when it says it will do something it will happen. Where we have got to is disappointing. Government and investors should be partners in the transition.
ESG and sustainability have become something of a hot political potato and there seems to be a backlash against it – where is this coming from and is it a problem going forward?
It is worse than that. The government is trying to engineer a backlash against sustainability as a wedge and dividing line among the parties leading up to the next election.
There are problems with that: it is an extremely short-term tactic and very disappointing. And in the long term, we know we will have to decarbonise our economy – that is not just the best for the future of the economy, it is what we need to do for the world.
Do you get a sense from the government that they are listening?
Our frustration is that it feels like policy-making is geared only towards a general election. That is not the way to handle a long-term economic transition that will have profound consequences for the country and take decades.
We want to work with whoever wins the next election over the duration of the next Parliament to make a serious dent in achieving our sustainability ambitions and targets.
What do you make of how asset owners have tackled the ESG and sustainable investment challenges?
We are seeing a lot more focus on sustainability as part of investment decision making. That is important. Focusing on ESG risks is a key part of building a portfolio.
One interesting example is the IPO of Deliveroo. Our investor members were quite nervous about that. This is predominantly because its profitability depends on a core ESG risk: the ability to pay drivers low sums of money for delivering pizzas and other takeaways to people’s houses. That is the S within ESG. And you then look at the long-term trajectory for this and other such companies. So it is here that we need to start looking more closely and effectively.
So do you think the social element of ESG has been overlooked?
The focus for a long time has been on the E, and more importantly the climate change part within the E. The whole cycle of approaching net zero and climate change from an investment angle is now well established.
What we need to start thinking about is how do we extend a lot of that thinking to other areas, which includes the E: nature, biodiversity and other things, and the S: working conditions, human rights, slavery and other key topics.
What advice would you give to asset owners to improve their approach to these issues?
What asset owners need to start thinking through is where they get their advice from and how their advisers are giving them good insights on sustainability issues. In particular, the scenario modeling they are doing. And then take a critical look at these scenarios and what they actually mean.
Also take a long-term perspective. Think through the time horizons on which your investments need to work, not just thinking about quarter to quarter.
There needs to be a lot more consideration given to stewardship. We need to raise it to another level. This could be called macro stewardship: engaging on a more economic level. So engaging with governments and national policymakers that have an influence over things at that level.
Do you think institutional investors’ net-zero objectives are stringent enough?
We saw a huge number of net-zero commitments being made at COP26 in Glasgow. It is not just asset managers and investors that need to have the commitments, it is the corporates themselves who investors are investing in.
What we need to think about is how transitioning is a risk compared to not transitioning being a bigger risk. We need government, policymakers and corporates to work together.
The challenge is also creating investment opportunities for net-zero committed capital to move into. How we are going to structure transactions to invest in is a core challenge.
What do you make of the Cop meetings? Do you believe they will achieve anything?
The Paris agreement is a phenomenal achievement of global diplomacy. It shifted the focus and had a huge impact. All of this means individual countries themselves need to take the agreements seriously, and that is the challenge we are seeing now.
What have you observed as the biggest issue investors have suffered from when it comes to ESG and sustainable investment?
One of the issues we have had is how we talk about it with clients and policymakers and how it relates to what we are doing. We are on a transition journey. Investors have a role as stewards of assets to help shape the economy.
Is greenwashing being dealt with?
The new Financial Conduct Authority (FCA) anti-greenwashing rule will go a long way in addressing that. We are on the edge of our seats for the FCA to publish the final guidance so we can help embed that.
You are highly committed to this area: what attracted you to the role and what spurs you on?
What is exciting for me is that financial services have such an enormous ability to make change happen. What excites me is seeing how much we can do and make happen. Also, what motivates me is working with the amazing team at UKSIF and its members, who have £19trn of assets under management and who are committed to moving the agenda forward.
What has been the biggest change within ESG and sustainable investment you have witnessed?
It has been the speed of change, the acceleration, we are now talking about how do we do this. That is one of the most fundamental pieces.
The next stage is where are those misaligned policies. And how can we go about addressing them.
What are the biggest challenges ahead?
The big challenge is post-election: where does the UK’s political environment go. We have to make sure that any incoming government sees the magnitude of what they need to do.
We are in a critical decade. We need to make sure that the government and the financial services industry work together as collaborators and partners to drive things forward and help to shape the economy, while growing the economy.
What has been the biggest lesson you have learnt during your career?
Work with amazing people and then you can make things happen.
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