Responsible investment takes centre stage
WRITTEN BY ADAM BLACK PHOTOGRAPHY MARKUS SPISKE
The global conversation about the environment, at all levels, has sky rocketed. 2020 was, broadly speaking, an unhappy stew of events. The ongoing swirl of the climate crisis mixed with persistent societal inequality and a dollop of pandemic thrown in for good measure, has caused more of us than ever to sit up and engage with the world we live in.
Individuals are thinking seriously about their personal responsibility and means of contributing; sustainable behaviours such as veganism and plastic-free living are increasingly mainstream. Companies across the board are considering, not just their corporate responsibility, but their entire rationale for being; their purpose. And governments are turning ambitious plans into concrete action.
With COP26 and the G7 presidency on the horizon, 2021 is a huge opportunity for the UK to re-commit to its tough goals on carbon and, ultimately, mark itself publicly as a leader in this arena, capable of backing up its pledges with action on the ground. Having passed the first laws of any major economy to become net-zero by 2050 in June last year, a lot of the groundwork for the country’s spearheading position is done.
“2021 needs to be for real commitments from the many.”
As we finally split from the EU and plan for a post-COVID world, the Prime Minister isn’t shirking from the issue. In December, he announced a new intermediary target of reducing the UK’s carbon emissions by at least 68% by 2030 (compared to 1990 levels). Another cog in his Ten Point Plan for a green industrial revolution, which aims to create 250,000 jobs and deliver over £40bn of private investment into innovative technologies.
But if 2020 was the year for promises from the few, 2021 needs to be for real commitments from the many. All stakeholders – investors, society, businesses, charities, NGOs, academics – must hold the government accountable and play their own roles to see the UK consolidate its reputation.
And ESG and responsible investment (in all its forms) will become a more visible part of how we all effect change. The industry’s power lies in its ability to potentially create better businesses at speed, to ‘impactify’ assets, and innovate new products and services, enabled largely by its model of ownership. ESG can and does weave through every moment of the investment process, from due diligence to value creation during the ownership phase through to exit.
Responsible investment has always been one of several moving parts in the ‘climate crisis’ landscape but only recently has its importance been proportionately recognised. During my career, ESG has become an increasingly central pillar in private equity and, today, key players are engaging collaboratively and at scale.
For example: FAIRR, a global network of investors addressing ESG and sustainability risk in the food supply chain; the UN-supported Principles for Responsible Investment (PRI), which shares best practices to incorporate ESG issues; the CDP (former Carbon Disclosure Project and Initiative Climat International (iCI) in respect of the climate crisis; and SPOTT ZSL, an online platform promoting sustainable commodity production and trade by tracking transparency around deforestation practices.
And the scope is wider than it was before, sustainability isn’t just about how we manage our energy usage anymore. It’s a part of everything we do: how we travel, what we wear, what we eat, what materials we use. Every company can make itself more environmentally sustainable or socially responsible thereby opening up the market for investment.
Unfortunately, equally opening up the opportunity for greenwash. It’s not hard for a company to write an ESG policy or to make vague commitments to some seemingly far off point in time – we will certainly see a lot more of them in 2021. It is much more difficult to put policy into practice and to act on those commitments though, and that is where we must direct our attention as consumers and investors.
We need to see meaningful, reasonable and achievable targets (based on approved science) that go above and beyond – such as measures which address “2021 needs to be for real commitments from the many.” RESPONSIBLE INVESTMENT TAKES CENTRE STAGE 32 A:I — Issue Three Feb 2021 supply chain issues, tackle scope three carbon emissions, and include robust carbon offsetting goals informed by, for example, the Oxford Principles – and ultimately tangible results.
When it comes to sector leaders, there are pockets of excellence across the board, but the food industry is one to watch. Innovation is high – perhaps spurred on by the fact that people are thinking more about their behaviours in day to day life, several of which centre around food.
Alternative proteins have the potential to structurally shift the intensive livestock industry, as the sector may see itself expand from a ‘meat’ industry to a broader ‘protein’ industry. To illustrate: research by FAIRR in 2019 forecast that the alternative protein market, which it valued at $19.5bn, could reach $100bn in value within 15 years, if it captures 10% of global meat market.
I’m a natural optimist – I have to remain one in my line of work and as a father – and progress is happening, but we need to see more of it and much faster. We need to take a multi-stakeholder approach with all groups tackling issues head on whilst listening to each other, maintaining collective responsibility, and sharing lessons learned as well as successes. For example, climate groups’ reactions inform wider conversations and set the bar for goals; investors and businesses consider what is achievable and lead by example; governments focus on the big picture and collaborate internationally.
ESG takes many forms and should be implemented in a manner that is true to your mandate as an investor. If you are removed from managing the underlying assets, then ask great questions and exert influence. If you are an active manager focus on those ESG factors that will move the needle at the level of the underlying portfolio company (not those issues that are already well managed or are given in order to simply ‘comply’ and operate). If you are an impact-focused investor concentrating on ‘solutions’, do more of that but be mindful of the growing footprint and operational ESG issues of the businesses you create and plan ahead accordingly.
Adam Black
Adam Black is Head of ESG & Sustainability at Coller Capital. He has worked in ESG and sustainability for over 28 years, during which time he has developed and implemented risk mitigation and value creation impact strategies across most industry sectors in over 60 countries worldwide. He is a frequent speaker and contributor to publications on responsible investment, ESG and sustainability in finance and private equity, and he sits on the BSI (British Standards Institute) Committee for Environmental and Sustainable Finance.