It’s been an exceptionally busy period for ESG and responsible investing, both in Ireland and on a global scale. This week, Ann Prendergast, Head of State Street Global Advisors Ireland, shares her insights on a dynamic and rapidly growing sector.
SIF Ireland: How has the Covid19 pandemic impacted on investor demand and the ESG agenda?
AP: “We identified four important dimensions on how the COVID-19 pandemic influences ESG adoption. First, the significance of the materiality of ESG criteria becomes evident. This is especially true for the “S”, or social part, which has often been perceived as rather vague and insignificant by critics. The pandemic proves this is mistaken.
“Second, although this is a health crisis, people are realising that climate change is nothing else but a slow-moving pandemic. As governments and regulators are confronted with the significant direct impacts of the pandemic, the focus on climate initiatives is unlikely to decelerate in the medium and long run.
“Third, when looking at percentage growth rates, ESG investments are amongst the fastest growing areas in finance and this trend has continued through the current crisis. In fact, sustainable equity funds saw net inflows in the first half of 2020, whilst the rest of the equity fund landscape was hit by outflows.
“Fourth, stewardship will play an even greater role post-pandemic as the importance of having a meaningful and impactful dialogue with companies, and executing voting rights, takes centre stage.”
SIF Ireland: What is the outlook for the rest of 2020?
AP: “Many industry participants are worried that the ESG agenda will be de-prioritised, but we see no evidence of that in Europe. The European Parliament has adopted the EU Taxonomy, which we expect will boost flows into sustainable investment strategies. There are also new ESG disclosure regulations, which will come into effect in March 2021.
“At State Street Global Advisors we are involved in numerous ESG consultations with the EU Commission. Given the progress of ESG initiatives, we have seen an increase in requests around how clients can integrate ESG and climate considerations in their portfolios, and we expect this to continue.”
SIF Ireland: How optimistic are you about the agenda?
AP: “I am as optimistic as I have ever been. The pandemic has revealed the importance of stakeholder capitalism, the idea that companies should consider the needs of employees, customers, suppliers and the communities in which they operate. “Encouragingly, there is also growing awareness among investors that a stakeholder approach and a focus on material ESG issues encourages long-term value creation.
“While the pandemic has disrupted our everyday lives and will delay progress on tackling climate change and other ESG issues, we do not think these initiatives will be deprioritised. The introduction of the EU Taxonomy Regulation will be fundamental to the realisation of the European Green Deal, which aims to boost private sector investment in green and sustainable projects. Some governments also continue to re-evaluate fossil fuel subsidies and carbon taxes.”
SIF Ireland: Can you tell us a bit about your organisation’s future plans around Environmental, Social and Governance?
AP: “At State Street Global Advisors, ESG will always remain a priority. From an investment perspective, climate change will continue to be one of our key focuses. Climate change poses both a significant long-term investment risk but also offers long-term investment opportunities.
“We have been researching climate data and scenarios since 2017, using this information to build an innovative climate data architecture that we have leveraged across asset classes and investment teams. Specifically, we have developed climate investment frameworks and solutions for equities and fixed income, that enable us to partner with investors and help them align their portfolios with their climate goals, including the common goal to reach net zero greenhouse gas emissions by 2050.
“Additionally, we will continue to leverage our proprietary R-Factor™ methodology, which is based on the Sustainability Accounting Standards Board framework. We will support sustainable capital markets by including R-Factor in our investment propositions, as well as embedding it in our stewardship efforts to drive positive change. Additionally, we will continue to challenge companies to improve transparency and disclosure of material ESG and climate risks by promoting the recommendations of The Task Force on Climate-related Financial Disclosures (TCFD) and SASB.”
SIF Ireland: Is there a company or person that you admire in this space and why?
AP: “I would have a difficult time highlighting one particular company or individual. Every market participant that openly tries to promote positive change and transparency, regardless of the individual circumstances, is a “friend”. We are all in this together and we need to build bridges and not walls. That said, maybe I could give a shout out to our Fearless Girl who, since 2017, has become a symbol of our focus on enhancing board quality by bringing cognitive diversity into the board room. After three years of productive engagements and voting, 681 companies, or approximately 49% of companies we identified, have responded to our call by adding a female director.”