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Events |ESG Forum
www.financialstandard.com.au 18 October 2021 | Volume 19 Number 20
Financial Standard Best Practice Forum on ESG 2021 Sustainability experts from funds management spoke about the most pressing issues impacting investors, companies and communities, now and in the foreseeable future at this year’s event. The Financial Standard Best Practice Forum on ESG kicked off with Perennial portfolio manager Damian Cottier01, who spoke about the second iteration of environment, social and governance investing, which he said will require a stronger level of authenticity, accountability and focus on tangible outcomes. Cottier said the first iteration of ESG investing is transitioning to Version 2.0 otherwise known as “better future investing”. The second iteration is more focused on authenticity in terms of outcomes produced by ESG investing, as well as increased engagement. Version 1.0 in some ways focused on ‘bad companies’ in the portfolio being excluded based on relatively high negative screens “But going forward, we think that there is going to be a lot more authenticity around negative screens. There will also be more [incorporation] of the concept of net-zero alignment with companies that are typically weeded out through negative screens,” he said. Perennial ESG and equities analyst Emilie O’Neill02 said the public has taken a keen interest in ESG investing thanks to several triggers. “Starting locally in Australia, it really kicked off with what we call the Black Summer bushfire event in New South Wales and Victoria and led to 46 million acres of fire damage followed by some of the worst floods we’ve seen in some time,” she said. Another trigger was the coronavirus pandemic, which brings up many ESG issues like equal access to healthcare and vaccinations and worker safety.
Overseas, China, Japan and South Korea all made a commitment to reduce emissions in late 2020, while the US resigned the Paris Agreement last January. BlackRock director and sustainable specialist for Australia Steve Monnier03 pointed to research that shows the largest institutional investors in the world are moving towards sustainable investing and taking ESG considerations increasingly seriously. BlackRock asked its clients in a recent survey to rank the importance of ESG concerns and 88% ranked environmental concerns as of the most importance. This shift, Monnier said, is where impact investing comes in. As sustainability becomes the norm, those seeking to have an impact will have to look deeper. BlackRock assesses its impact investments under three main criteria. “It must be material, it must be additional, and it must be measurable,” he said. “Material refers to the core products and services that must advance impact goals like the Sustainable Development Goals. Additional means that the strategy must provide outcomes that are unlikely to have occurred without that contribution and measurability is really about ensuring that the impact of our investments is quantifiable.” Meanwhile, Magellan Asset Management deputy chief investment officer, portfolio manager and head of ESG Dom Giuliano 04
Even with the best intentions, many companies cannot quickly mirror the demographics of their footprints. Dom Giuliano
highlighted three key ESG issues that will endure over the longer term. “Firstly, equality at its heart is respect for the dignity of each individual, where each person is judged by what they bring rather than any physical, social or spiritual characteristic.” In the ESG community, this is referred to as “equality, diversity and inclusion”. A firm’s demographics should reflect the geography in which it conducts its business, but it is not always that simple, he said. Secondly, the circular economy is essential for long-term sustainability for all activities where there is less waste, and more recycling of waste. Some industries produce “dirty products” that are difficult to recycle. Yet those products are often necessary to support other industries which are deemed “clean”. By way of example, he compared entertainment, production, and transmission, which are generally considered eco-friendly, to battery production and recycling, which remain challenged. He asked: “Is it fair to directly compare the environmental rating of a battery manufacturer against entertainment companies in that light?” Finally, climate-related risks will impact the quality of the circular economy. Giuliano said there are two parts to climate risks: transitional risk which is related to the impact of the decarbonisation of companies on society, and physical risks which come from hotter temperatures, rising sea levels and so forth.