NAB Corporate & Institutional Banking recently hosted a roundtable discussion to explore the leading trends in the way asset managers are incorporating ESG into their activities as they seek to shift their portfolios towards net zero. They also discussed the implications for future availability of equity and key considerations for senior executives when responding to these trends.

Following are some of the key discussion points.

What are some of the main trends in how asset managers incorporate ESG into their activities?

• ESG integration involves systematic inclusion of ESG factors into decision making. It’s very common and is a continuous process.  However, for many asset managers, ESG integration has not historically impacted their investment decisions.
• This is changing as asset owners and some regulators put pressure on asset managers to improve their ESG integration practices. Investors in Australia are taking a range of approaches around what good ESG integration practices look like, particularly with regard to climate risk.  At one end of the spectrum some investors are increasingly considering carbon emissions and intensity data to ensure they’ll achieve net zero well before 2050, often through divesting high emitting assets.  While on the other end of the spectrum some investors are considering the incremental impact they can have on assets that are essential to society, without a requirement for a pathway to net zero.
• For any company it’s important to develop and publish a Board approved ESG strategy with clear ESG drivers and metrics; provide relevant and consistent ESG data and disclosures; and engage proactively with asset managers.

How are investors considering the role of divestment vs. engagement?

• Preferences for divestment vs. engagement are often quite practical in their origin.
• Passive asset managers such as Vanguard and Blackrock are predominantly hold stocks in line with an underlying index. As such, divestment isn’t an option and their focus is on working with companies to manage transition. An example of a well-regarded engagement initiative in which many investors participate is Climate Action 100+.
• Active asset managers also undertake engagement activities but many also divest assets to achieve their goals. Divestment is an increasing trend as a result of more and more investors make net zero commitments.

What’s one of the big challenges public company executives are seeing as a result of changes in the investment management landscape and how should companies respond to these?

• The volume of information and data requirements and requests being placed on companies is huge and at times unmanageable. Some companies are simply not able to provide all the information and data requested by not only investors but also various other stakeholders.
• In addition to considering resource requirements, companies should consider their governance structure and in particular the relationship between their finance, investor relations and sustainability teams as these teams need to work together effectively to meet information and data requirements. Some organisations are combining these teams.