2022: a year for responsible action


2022: a year for responsible action

The Responsible Investment team have now returned from their festive breaks and are ready to launch into the new year with enthusiasm – but what will keep us busy in 2022? We believe the majority of our activities will focus on the following five themes:

 

1.  Climate Change

Having a climate commitment now feels like a minimum standard for companies, which is a complete change to just a few years ago. For example, two thirds of the world's heaviest emitting companies (accounting for over 80% of global greenhouse gas emissions) have now set Net-Zero targets.  

  

The commitments have been made - details to follow. Who among them will assess all aspects of their business, include scope-3 emissions, draw up realistic pathways and see this as an opportunity? 

  

The major challenge for asset managers will be finding reliable, forward-looking data to compare net-zero plans and progress. We expect that investors’ focus will shift from backwards looking metrics, such as a portfolio’s GHG intensity and instead focus on a company’s future transitions.  

 

2.  Biodiversity

To-date, many sustainability investors have tended to focus on carbon risk or climate change, while the equally pressing issue of biodiversity has largely been ignored.

 

Biodiversity, which represents the variety of life on Earth in all its forms and interactions, is one of the most complex and vital features of our planet. With an estimated one million species at risk, investors are waking up to its intrinsic value, and the tangible benefits it has for society and the economy.

 

According to the World Economic Forum, more than half of the world’s GDP - around $44 trillion - is moderately or highly dependent on nature and its services. The finance community must develop frameworks and initiatives to mitigate the associated risks of biodiversity loss across portfolios and use our influence as shareholders to encourage companies to reduce their negative impact.

 

And while progress has been slow, policymakers are increasingly starting to discuss the links between biodiversity and financial markets. It is increasingly mentioned in new sustainable finance regulations. Pegged as one of the key topics in investing for this decade, biodiversity should now get the attention that it deserves.

 

3.  Keeping the ‘S’ in ESG an area of focus

Throughout the Covid-19 pandemic, there has been a surge in the interest and transparency in social issues; (highlighted in a soapbox in 2020 - https://www.aegonam.com/en/aegon-insights/NewsArticles/dont-distance-from-social/). This has ranged from the Black Lives Matter protests in 2020 leading to large scale action on trying to resolve the diversity problems in public companies, to increased scrutiny over the treatment of workers in the supply chains of some of the biggest manufacturers in the world.

 

The world is hopefully moving towards a post-pandemic era, but we cannot afford to be distracted from the need to keep the pressure on these important topics. We will continue to scrutinise and engage with the companies we invest in to help ensure that people are treated with dignity and respect within the companies we invest in.

 

4.  Sustainable Accounting

The EU Taxonomy (a new classification system that will help define which economic activities can be considered environmentally sustainable) comes into force later this year. Sustainable Accounting is therefore coming to the fore more than ever before. In 2020, various groups and investor associations (on behalf of over $100 trillion AUM) urged companies and their auditors to consider material climate-related matters in their 2020 financials (and their audits).

 

Accounting standards boards (IASB, IAASB and FASB), separately, also have urged auditors to incorporate climate-related matters into financial statements. Unfortunately, this is not fully reflected in reality. A study from the Carbon Tracker Initiative and UNPRI revealed that over 70% of companies had not considered climate matters when preparing their 2020 financial statements, and 80% of auditors provided no indication of whether, or how, they had considered material climate-related matters.

 

We do expect to see harmonised Sustainable Accounting standards and practices across Europe. Hopefully, these pressures will drive the change needed across the globe too.

 

5.  Increased Regulation

Building on the momentum of 2021, sustainable finance regulation is expected to increase. From the alphabet soup of acronyms – SFDR, TCFD, NFRD etc. – real challenges will emerge as deadlines quickly approach for implementation. With the intention of increasing the amount and consistency of ESG-oriented data, it is probable that early compliance will be achieved on a ‘best efforts’ basis. Savvy investors will need to cast a critical eye over all of this new information to identify the real sustainable leaders.

 

We wish all of our investors a healthy and prosperous new year.


More about the authors

Aegon AM Responsible Investment Team


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