A further slowing in growth
New NAB research shows how asset managers are working towards a more sustainable future through their investing activities and how companies can best embrace the change.
The rising visibility of global finance for net zero was a key theme to emerge from the recent UN climate summit in Glasgow as the sector rapidly escalates its commitment to ratchet ambition.
To help investigate these activities further, NAB has produced a report which offers insights into how the growth of environmental, social and governance (ESG) investing is changing the cost and availability of capital and how to navigate this shifting ecosystem.
Cathryn Carver is NAB’s Executive, Client Coverage, and says while companies may be at different stages of the transition, and face different challenges in both sectors and scale, it’s important to embrace this pivotal opportunity for long-term, sustainable growth.
“You have to change your mindset because this is actually good for business,” Carver says. “So, first of all, embrace it. The science is not going away and all your stakeholders are demanding you lift the bar.”
As the NAB ESG and Capital report explores, asset managers are using higher standards of stewardship, among other investing activities, to help achieve the ESG goals increasingly sought by investors and the wider community. It details how managers today not only have to protect assets from foreseeable risks but also set them up for the transition opportunities to come.
“You’re actually not doing your job of stewardship if the value is either going to be stagnated or it’s going to decrease over time,” Carver says. “As a good steward you actually do need to take that broader lens in order to maximise value.”
The important factor for companies, she says, is to listen to stakeholders and come up with a “thoughtful, almost co-created” strategy that is transparent and authentic to the business when deciding what to commit to.
“Look at what makes sense for you,” Carver says. “You put your goal out there, and you put some shorter term horizons around what [investors] can expect to see from you, by when. That transparency is really critical.”
NAB’s Head of Sustainability, Client Coverage, Leanne Bloch-Jorgensen agrees business needs to understand what the transition and physical risks are under different scenarios and use this as a basis for a benchmarked, transparent strategy.
“Understand what’s best-in-class for your sector, because you can learn a lot from others,” Bloch-Jorgensen says. “There’s a lot of things that are happening at the moment that we wouldn’t have seen even six or nine months ago. What is going to be best-in-class today is going to be the baseline tomorrow.”
One of the big announcements at Glasgow was the formation of the International Sustainability Standards Board (ISSB) which promises to elevate sustainability to the same status as financial reporting, sitting alongside the International Accounting Standards Board (IASB).
Another was the Glasgow Financial Alliance for Net Zero (GFANZ) which brings $US130 trillion of investment from across the global financial system to the task.
Carver says it’s important to have an ongoing dialogue with stakeholders in the investing ecosystem at significant intervals. In this way, asset managers can also help to support business through cross-pollinating global knowledge and innovation from their portfolios.
Bloch-Jorgensen adds: “It starts with the understanding of who is in your sphere of influence or who can influence you. That picks up your employees, your board, your government policymakers, your investors, financiers. All that is going to impact on what you need to think about.”
NAB’s ESG and Capital report notes stewardship – whether through voting or engagement – is one of the fastest-growing ESG-related activities and can be a differentiating factor for owners when selecting for excellence in asset managers.
As investors increase their ESG stewardship activities, many companies are experiencing a material increase in requests and requirements – from data and resourcing to shareholder resolutions, the report says.
A key trend is for investors today to increasingly band together on specific issues. Climate Action 100+ is a prime example, as the largest ever investor engagement initiative on climate change. It brings together more than 600 asset managers and owners working with 167 companies who are responsible for over 80% global emissions to achieve net zero.
The NAB report also finds companies should use shareholder resolutions as a barometer of investor concerns and, wherever possible, take action to address these. Another emerging trend is for asset managers to release engagement reports, disclosing evidence of the impact of engagement activities on portfolio ESG outcomes.
While these are important factors, Carver says the focus for companies seeking a better ESG performance starts by supporting their people and their customers.
“If we get that right then we’re also helping our communities prosper,” she concludes.
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