Sustainability is an area that continues to grow in significance for the industry. While broad, it is an area we are well-placed to tackle, given our past work and current passion. Well-attended sustainability summits in London and Melbourne in 2019 led to the creation of a very comprehensive action blueprint for the whole investment industry and the Institute.
Building upon this, the Institute is launching a major research stream in 2020, focusing on driving positive changes within the investment industry to become a force to address the climate crisis. As always, we are looking to form a well-represented working group that not only improves the quality of our content development but also magnifies our voice.
There is a long list of potential areas that we could tackle in this initiative, but they fall into two main categories:
1. Evolving ownership practice
This category addresses what changes are required regarding the “stuff” that we already own and plan to continue to own. One obvious area to explore is what stewardship / engagement best practice should look like? There is an increasingly lounder voice that the definition and interpretation of fiduciary duty to evolve to give safe harbour to help climate-aware investing. What should that new definition be, and to what extent can the Institute influence the evolution of it? How do we structure manager mandates differently and raise our game in monitoring and reporting? As investment mandates move from risk / return targets to risk / return / impact targets, the need to properly evaluate, report and manage the impact of all our investments will continue to grow. Do we insist that investee companies report against TCFD framework? The changes might even involve the organisations we work for, many of which could benefit from a clarification of their own mission and purpose.
2. Climate-driven portfolio change
How should we change our portfolios due to climate change considerations? There is a heated debate in our industry about divestment – is it a crucial part of a broader strategy or, as Bill Gates claimed, does it have zero climate impact? If divestment does have some merits, can we develop a practical guide to help investors execute a divestment policy? Investors, as providers of capital, have a critical role to play in funding a circular and greener economy. How do we select which technologies to fund and scale? Negative emission technology, anyone? If the policy response is indeed inevitable, should investors get ahead of the curve and change portfolios today?
What underpins all of the questions above is a deeper understanding of the key characteristics of the future economy (and hence the future investment opportunity set) that are consistent with global warming of no more than +1.5C above pre-industrial levels. We previously communicated to you under the banner of the +1.5C portfolio but, really, this is about a +1.5C economy.
As a member of the working group, your first task will be to help us prioritise and turn this currently dauntingly long list of challenges into a workable agenda for 2020. As a rule of thumb, the time commitment is around 20-40 hours for the entire year. Please contact Tim Hodgson or Liang Yin if you are interested in joining us.
We plan to build out our work on culture and have launched a global peer study on investment culture, leadership and diversity. This study aims to (i) improve the definition of, and language used to describe, culture; (ii) formalise ways that culture can be measured; (iii) make the link between strategy and culture more tangible and achievable; (iv) explore the idea of ‘culture by design’ and how to action change; and (v) understand how best to socialise change. We have a strong group of members and non-members enrolled within the study but are happy to add more where that would be useful for members. There will be a symposium in London on 25 June to discuss the results of the study and collectively extract further learnings.
The TPA working group continues to build on the findings of a global peer study into the asset allocation practices and aspirations of leading asset owners, including the TPA approach to portfolio construction. To progress the TPA concept further we will develop a best practice checklist, and discuss this and other aspects at a symposium, on Wednesday 11 March in Sydney. We will explore with the working group if creating a series of case studies, describing challenges faced and successes achieved, would be useful in aiding wider adoption.
The Institute has been researching, and involved in, the universal ownership conversation for a number of years and we will launch a survey on the subject early in 2020. We hope to use the results of the survey to inform a summit planned to be held in Cambridge in May 2020. Look out for more details on this research and event.
Sustainability disclosure – the need for a common language
If you want to see change, you can stop counting at ‘3’Past returns aren’t even a good guide to the past
Fiduciary duty and the impact of investment decisions
Bathtubs, intergenerational fairness and the sustainability end game
We were proud to be a finalist at the Finance for the Futures 2019 awards, for the category of Driving change through education, training and academia.