Welcome to ‘In the Hot Seat’, a fortnightly series where we tackle some of the biggest questions facing sustainability professionals across a range of industries. We’ll also explore what sustainability means and how it is interpreted across different sectors and geographies.
This week, Zara de Belder, Head of Maitland/AMO Sustain, caught up with Peter Uhlenbruch, Head of Investor Standards at responsible investment charity, ShareAction. Peter leads ShareAction’s investor engagement and leading practice programme related to global surveys.
1. In your recent report, Point of No Returns – Biodiversity, ShareAction states that “asset managers currently fail to grasp the systemic threat posed by biodiversity loss.” What can the industry do to better manage the impact of biodiversity loss?
We know from our research that the majority of investors are yet to feature biodiversity on their ESG radars. In fact, around 70% of the world’s largest 75 asset managers don’t even mention the topic in their responsible investment policies. But biodiversity is just as much a systemic crisis as climate change, where investors seem to finally be getting the message. Yet you have this issue featuring in the World Economic Forum’s top global risks, and estimating around $44 trillion (effectively half other world’s GDP) is dependent on nature-based services. Even the
Dutch Central Bank has estimated around 36% of their investors’ portfolios to be dependent on ecosystem services.
So yes, investors need to understand the investment risk, but even this is not enough. Biodiversity is the foundation of life itself, that underpins all economic activity, that dovetails with climate change, and it’s this systemic awareness that investors appear to be lacking. The UN recognises that we are in the throes of the world’s first anthropogenic mass species extinction event, with a million species at risk of extinction by 2030. And while we are seeing some investor actions around biodiversity as a single species or sectoral issue, this only captures a slice of the issue. To really move the needle, investors need to understand and take account for the real-world impact of investments on biodiversity. A financial risk lens can only take you part of the way.
Thankfully there are some investor-oriented initiatives out there to help. Recently, we have seen the establishment of the Taskforce for Nature-related Financial Disclosure (TNFD), a parallel initiative to the TCFD that will help investors better understand their financial risk exposure. There are other tools to help investors understand the impacts of their investments on biodiversity, some of which include the Global Biodiversity Score, the Species Threat Abatement and Restoration (STAR) Metric, the ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) tool, the IBAT (Integrated Biodiversity Assessment Tool) tool, SCRIPT (Soft Commodity Risk Platform), and TRASE platform.
Promisingly, we’re also beginning to see indications that investor awareness and action is beginning to pivot. AXA Investment Management have issued public statements about the systemic implications of biodiversity loss and are escalating the topic in their corporate engagement programme. BNP Paribas Asset Management has set a target for portfolio companies to require setting No Deforestation, No Peat and No Exploitation (NPDE) commitments for agricultural commodities by 2020 and by 2030 for non-agricultural commodities sectors. Some investors are already collaborating to improve the quality of impact data on biodiversity by companies.
In terms of what investors can do, they can use the tools mentioned to understand their exposure, but also need to foster a systems-level awareness of the crisis, and really start thinking about the impact of their investment choices. Ideally, this awareness should filter through into purposeful company engagement, requiring companies to disclose their biodiversity-related risks and impacts, and setting fit for purpose targets.
On the policy front, the UN Biodiversity Conference now scheduled for May 2021 marks a key opportunity for global policymakers to set an ambitious post-2020 agenda. Investors can play key role to play by lobbying for strong global ambition and targets, similar to how investors helped deliver the Paris Agreement for climate change in 2015. Sadly, this week the UN just released a report noting that none of the 20 Aichi biodiversity targets set in 2010 have been met, which underscores the urgent need for all stakeholders to double down their efforts.
2. ShareAction’s AGM activists are renowned for taking a bold approach to AGM activism. What were the key highlights from 2020 and importantly, what can we expect for 2021 AGM season?
COVID-19 has certainly been a game changer for us this AGM season with most shareholder meetings moving to digital forums, which has limited shareholder participation. In April this year, as we expected two thirds of FTSE100 companies to hold digital AGMs ‘behind closed’ doors, we wrote to the chairs of these companies requesting companies take steps to ensure valid participation by shareholders.
Despite this unprecedented challenge, we still managed to hold companies to account on a range of ESG issues by asking up to 90 AGM questions either by email, video or live during virtual AGMs throughout 2020. This year, for the first time, we also asked AGM questions at US companies (like Pepsi-Co, Coca-Cola and Kellogg’s), which focused on childhood obesity.
For companies, where AGMs went behind ‘closed doors’, we still wanted to ensure fellow company shareholders could hear our questions, so we took to twitter where our AGM activists recorded and shared their questions (you can check these on our twitter account).
We were also delighted to receive direct backing from big investors like NEST and EQ Investors, for our AGM question at Tesco, highlighting the need to boost healthy products
One important theme running through our AGM questions this year for the first time hasbeen on the topic of insecure work, as COVID-19 has highlighted society’s dependence on low-paid workers. For example, we asked Sainsbury’s why they are not an accredited Living Wage employer, and they have since agreed to meet with us.
This year, we also saw our AGM activists step up their support in helping hold the banking sector to account on climate issues. With the help of 130 supporters we were able to successfully file a shareholder resolution at Barclays asking for the phase out of financing of fossil fuels. The resolution received 24% of shareholder support, thanks also to the help of hundreds of our supporters who encouraged their pensions to support it.
For 2021, regardless of what format shareholder meetings will take, we will continue to ensure shareholders are able to legitimately exercise their voice and asking questions on relevant ESG topics. We’re also thinking about how AGMs could be run in the interests not only of shareholders, but stakeholders more widely. After all, we are seeing an unprecedented global shift towards stakeholder capitalism.
3. COVID-19 has shone a spotlight on obesity and the impact poor diets can have on people’s lifestyle and wellbeing. What can investors do to build healthier portfolios?
Yes, this is a big issue. It’s easy to forget two thirds of adults and a third of children are overweight or obese, and this imposes an enormous financial burden not only our NHS (£6.1 billion annually) but also business and society via reduced productivity and economic growth. We also know that obesity raises the chance of death from COVID-19 by a third, and that over 70% of ICU patients with the virus are either overweight or obese. We also believe that companies dependent on the sales of unhealthy products will be unsustainable in the longterm, which also clearly presents an investment issue. So what can investors do?
Thankfully we have a Healthy Markets campaign designed to educate and galvanise investors here in the UK around the issue of childhood obesity. We’ve published a series of investor briefings that clearly articulate the investment risks and opportunities in key sectors such as food and drink retailers and manufacturers. While some companies are taking positive actions, our research finds that there remains a huge disclosure gap, often leaving investors in the dark and unable to determine whether efforts are sufficient. These briefings also contain useful guiding questions for investors to incorporate into their company engagement with these sectors, which is one of the most powerful ways we can help drive change. Some key asks include asking companies to not just improve disclosure, but set clear targets towards shifting their sales towards healthier products.
We also coordinate a Healthy Markets investor coalition that uses our research findings to support individual and collective company engagement by investors. We invite any interested investors to check out our research and get in touch about the coalition!
4. If you have one piece of advice for someone considering a career in responsible investing, what would it be?
Just go for it, it is the future. There will come a time in the not too distant future where all financial institutions will be held responsible (either by policymakers, clients, shareholders, or society at large) for the real-world impacts of their investment decisions. I’ve also found that as human beings, the people working in the RI-field are generally just terrific: passionate, smart, friendly and driven. Why wouldn’t you want to be part of this inspiring community to help usher in a new economic era where both planetary boundaries and human dignity are respected by all institutions? There is no alternative.
5. Finally, what does sustainability mean to you?
To me it means taking full responsibility for the consequences of your actions. If you’re an investor, you need to make sure that every company or project invested in contributes in some meaningful way to the well-being of society, while avoiding significant harm to others. And with the consequences of today’s actions rippling decades into the future, it means adopting a time-frame that extends beyond months and years into decades. The decisions made today, and over the coming years, will absolutely determine the quality of our future, and generations to come. We’re dangerously close to triggering non-linear tipping points with regard to runaway climate change (if not already), and the first anthropogenic mass species extinction, therefore the stakes could not be higher.
About the Author
Also by this Author
- Maitland/AMO Sustain – In the Hot Seat with Mikael Homanen, Principles for Responsible Investment
- Natural Resources Forum – Summary Note
- Maitland/AMO Sustain – In the Hot Seat with Will Nicholson, The Food Foundation
- Maitland/AMO Sustain – In the Hot Seat with Peter Uhlenbruch, Head of Investor Standards at ShareAction
- Maitland/AMO Sustain – In the Hot Seat with Mary Goudie, Baroness