Blog

Key take aways from PRI in Person

By Simon O’Connor, CEO, Responsible Investment Association Australasia

I was fortunate to spend last week in Paris, with 1700 others at the annual PRI in Person, the largest ever global conference of responsible investors. It was a week full of rich content, which allowed a global sharing of latest practices, regulatory developments and a strong focus on what kind of role the finance sector will play in confronting the great challenges of our time, not least, climate change.

My top 5 take-aways are as follows:

  1. The world of responsible investment (RI) has reached a new maturity and achieved mainstream acceptance, and with that comes a new level of scrutiny and regulation.

Whether it was the speech from the UK’s Minister for Pensions, that outlined their changes about to come into force requiring pensions to both report on ESG and to ask their clients of their ESG preferences, or France’s Minister for Finance, speaking eloquently about the critical role of a sustainable financial system in underpinning a prosperous French economy, responsible investment is now firmly in the sights of key government ministries.

And with this is rapidly following a new wave of regulation that will enforce minimum standards of responsible investment (think climate risk reporting as already being signaled by the NZX, ASCI and APRA). The acronym soup was at times hard to keep up with (IOSCO, IOPS, ESMA, EIOPA, AMF, SEC, FRC, TEG, EIB, NGFS) but the message was clear. RI is no longer a nice to have; it’s being embedded in financial markets regulation across the world – pensions, insurance, banking and securities issuers – at an incredible pace whereby ESG will be required to be disclosed, managed, reported on, scenario tested, asking your client preferences, and built into default products.

One heads up is the International Organisation of Pension Fund Supervisors which will shortly be launching guidance for supervisors on requiring pensions to integrate ESG, to clarify its alignment with fiduciary duties, to report on ESG factors and to do scenario testing.  This comes on the back of IOSCO’s guidance to securities regulators and the Network for Greening the Financial Systems guidance for central bankers, all of which will make their way through to our markets.

  1. Standards in RI are emerging, converging and lifting

With the growth in our industry, we are now squarely in the sights of regulators and clients, and with this maturity comes expectations of high standards of practice. This is no different to any other industry sector – we’re now accountable to ensure we’re delivering on what we promise with our RI commitments. No longer can anyone expect that simply having a nice sounding policy is enough in RI.

There are very live conversations by industry and regulators around convergence of definitions and standards of practice, with the PRI itself lifting minimum reporting expectations, and regulators moving to lift the bar. The UK’s Financial Reporting Council for example have had a stewardship code in place for years, but is now redoing the code and lifting standards, to ensure effective, meaningful and evidenced reporting. Equally, new RI labels are emerging in the EU, that will be underpinned by the developing EU taxonomy that is in development, to ensure consumers can be confident they are getting what they expect from labeled RI products, and not being misled.

This is a sweet spot where the Responsible Investment Association Australasia (RIAA) focuses strongly, where we have been embedding standards of practice across our research and Certification Program. We keep a close eye on international developments to both inform our direction as well as to directly shape development (for example we have fed into the European processes details on our Certification Program, and are informing global discussions on refinements to definitions of RI through our participation in the Global Sustainable Investment Alliance).

We are now at a stage of the markets development where it is no longer all about growing RI AUM, but rather deepening the practices that deliver real world outcomes.

  1. Corporate engagement is a critical tool of responsible investors and is getting more strategic and collaborative

Corporate engagement has long suffered from being the vague and poorly measured practice of responsible investors. Those days are limited. It was clear that leading responsible investors are getting strategic, targeted, outcomes focused and collaborative, and most importantly are delivering results from engagement.

A number of practices and examples were unpacked that highlighted the impact that can be had by investors when well informed and well directed. Whether it was Shell discussing its commitments around reducing scope 3 emissions and linking executive remuneration to achieving results as a result of Climate Action 100 engagements, or mining industry wide engagements on fixing tailings dams, progress is being made through engagement, often coupled with the threat of divestment or shareholder resolutions.

What is emerging is that many of the big ESG issues being confronted require much more strategic engagement, can’t be avoided by company level divestments, and often require engaging sector wide participants – such as industry bodies – not just single companies.

Whilst we’ve still got some way to go to have mastered engagements, it’s my sense that as an industry we’ve now taken the training wheels off, with signs of strong and effective activity through effective collaborations, and much greater accountability as to the results of this activity.

  1. Much of what we work on as responsible investors are systemic challenges requiring system wide responses

This is clear – to address the Paris Agreement on climate change or the Sustainable Development Goals, a single investor working on a single portfolio can only have limited impact. Radical collaboration is necessary, amongst responsible investors, across finance, together with regulators, across companies at an industry wide level, with civil society if we are to succeed in maximising the contribution finance can have to delivering on these important global goals. Collaborative initiatives are popping up globally, and is a key reason why initiatives like our own Australian Sustainable Finance Initiative and NZ Sustainable Finance Forum are such critical pieces in our industry’s response to these challenges, as forums that bring so many of those parts together to map out a pathway forward.

It’s clear that for responsible investment to succeed, we’re going to need to master collaborations, but also that our role in shaping policy and regulation will also be key. It was said repeatedly throughout the conference that more and more responsible investors are actively engaging in policy advocacy as a newer, yet critical, tool in the RI toolkit.   Much of what we aim to achieve cannot be achieved unless we influence the rules of the game such as what is priced and valued, and what is not.

  1. Our region continues to punch above its weight

It was pleasing to see, that for many of the issues coming though, our region has activity underway, if not yet fully progressed. This was made clear across much of the conference, but brought home in the announcement of the PRI Leaders Group 2019, comprising asset owners with strong RI performance. No less than eight Australian and New Zealand members of RIAA were amongst the 47 global leaders: CBUS, First State, HESTA, Local Government, NZ Super, Trust Waikato, Vic Super and Vision Super. Congratulations to you all.

Across Australasia, the regulators are moving, our level of uptake to RI is one of the highest globally, and our customers are increasingly engaged.  With the growth and maturity of our sector comes a host of new challenges and expectations. There remains much to do to ensure our responsible investment practices deliver for our clients and customers, with the ultimate shift being towards ensuring we are delivering better outcomes for society, communities and the environment.