On 16 April, FCLTGlobal convened a roundtable discussion of top global investors and corporate leaders to discuss Capital Markets Solutions for a Sustainable Future.

Commitments to net-zero objectives are taking hold across the investment value chain and present substantial opportunities. But are these initiatives likely to infuse capital into actual climate solutions, or do we risk creating structures that prioritize individual carbon neutrality while delivering less actual impact?  Our conversation with investors and companies highlighted the importance of leadership in capital allocation and asset management approaches that produce measurable, long-term improvements in climate sustainability, rather than simply shifting assets to the next owner.

Discussion Leaders

Debby Blakey
Chief Executive Officer, HESTA
Ken Mackenzie
Chairman, BHP
David Neal
Chief Executive Officer, IFM Investors

Participants

Justin Arter
Chief Executive Officer, Cbus
Marc-André Blanchard
Executive Vice President, Head of CDPQ Global, CDPQ
Wendy Cromwell
Vice Chair, Senior Managing Director; Partner; Director, Sustainable Investment, Wellington Management
Neil Cunningham
President and CEO, PSP Investments
Henry Fernandez
Chairman and Chief Executive Officer, MSCI
Carol Geremia
President, MFS Investment Management
John Goldstein
Head of the Sustainable Finance Group, Goldman Sachs
Tetsuya Kodama
Vice Chairman, Asia Pacific, Barclays
David Lanning
Strategy Head, Arisaig Partners
Howard Lee
Deputy Chief Executive, HKMA
Chow-Kiat Lim
Chief Executive Officer, GIC Private Limited
Dilhan Pillay Sandrasegara
Executive Director and Chief Executive Officer, Temasek International
Vinay Shandal
Managing Director & Partner,  BCG
Ian Silk
Chief Executive, AustralianSuper
Carsten Stendevad
Senior Fellow, Bridgewater Associates, LP
Deanne Stewart
Chief Executive Officer, Aware Super
Mostapha Tahiri
Head of Asia Pacific and Executive Vice President, State Street Corporation
Tom Tsuneishi
Chairman, Tokyo Electron
George Walker
Chairman and Chief Executive Officer, Neuberger Berman
Theresa Whitmarsh
Executive Director, Washington State Investment Board
Mark Wiseman
Chair, AIMCo

 

Focus on climate impact, not just commitment

Several participants noted the challenge of equating climate action and divestment.  While divestment can be useful as a tool, it does not necessarily provide or incentivize solutions for measurable climate change.  Further, as one participant noted, asset managers and owners who divest in order to create low carbon portfolios in the short term often risk leaving “dirty” assets in the hands of actors without incentives to reduce their emissions over the long term.

According to one participant, a new “narrative of climate investment” is needed to counterbalance that of divestment.  Investing in climate transitions requires taking a long-term view, as actions such as acquiring assets with higher emissions profiles in order to reduce them over time may result in portfolio emissions increasing over the short term. “We can’t reduce emissions if we can’t buy them,” noted one investor.

Furthermore, as climate risk generates increasing physical risk, there will be a need to invest in adaptations regardless of the path we on to 2050.  Building climate resilience may increase emissions in the short term in order to protect certain populations while longer-term climate-friendly solutions are implemented.

There was broad agreement that changing emissions by investing in climate solutions will require greater dialogue and commitment across the investment value chain, with a focus on climate impact, rather than the achievement of individual emissions-reduction targets or “checklist washing”.

Proxy voting is a double-edged sword

FCLTGlobal’s research and analysis demonstrate that investor engagement, including proxy voting, is important for long-term value creation.  In an effort to elevate the quality of corporate governance, some investors have initiated preannouncement policies for important proxy votes across a range of corporate actions, including those related to the material impacts of their business and operations on the environment.  As one participant noted, this practice encourages “owners to behave more like owners and can make the system work better” by increasing engagement and accountability.

While publicizing shareholder positions on proxy ballot questions can highlight important issues and provide points of focus for investor-corporate engagement, participants also cautioned that the effectiveness of proxy measures depends on their construction. While proxy measures can raise awareness and provide some external pressure for investors to take a more active approach, league tables that rank asset managers and owners on their voting records can be counterproductive and mask effective investor/corporate dialogue. Engagement on a particular issue may influence a company’s systemic approach to emissions reduction more effectively.

A range of constituents, a range of expectations

In FCLTGlobal’s recent article on emerging investor responsibilities, we noted that asset owners face changing and evolving expectations about their responsibilities with respect to different constituencies and issues.  Investors in our discussion focused on how to manage climate as a key financial, environmental, and societal risk.

While investors recognize climate as a risk factor, they often also cite their obligations as fiduciaries to prioritize returns.  Roundtable participants discussed the need for more data and better forms of measurement in order to better understand the climate-related investment landscape and return potential.

Balancing multiple responsibilities will be an ongoing and increasingly complex challenge for investors.  However,  taking a long-term approach to evaluating responsibilities – such as climate-related divestment or investment – can help investors optimize decision-making and long-term returns.

Next Steps

Our cross-value chain discussion highlighted the need for effective, ongoing communication among companies, asset owners, and investors as companies and investors transition their business models and portfolios to a more sustainable future.  In particular, we are working on how investment boards can lead the implementation of climate-aware portfolios and how companies can incorporate climate change into their long-term roadmap for investors.

Developing tools and resources to address the issues raised in conversations like this one will be crucial as we continue our mission to rebalance capital markets to support a long-term, sustainable economy.

We welcome further suggestions and opportunities for collaboration. To learn more about the topics discussed here, view our library of resources at www.fcltglobal.org, follow us on social media @FCLTGlobal, or email [email protected]

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