Fund Solutions

Active Engagement Key to Sustainable Investing

Passive strategies can be proactive, institutional investors told.

Actively engaging through passive portfolios, detailed risk profiling and use of voting powers were just some of the suggestions given by panellists to institutional investors looking to better address environmental risks at Climate Investment Coalition event, held virtually at last week’s Climate Week NYC 2020.

Selwin Hart, Special Adviser to the Secretary-General on Climate Action and Assistant Secretary-General to the Climate Action Team, United Nations, had five suggestions for asset owners and asset managers alike.

“First, clear action will ensure investors do not ignore physical and transition risks and that they only proceed to investments that have already accounted for these risks. Second, [investors should] take a more active role with their passive portfolios, revise indices in which they invest in, to take into account transition risk and alignment with net zero. Third, they should use do no-harm tests to ensure that investments will indeed contribute to climate objectives,” he said.

For his fourth point, Hart encouraged investors to join multi-actor and multi-stakeholder initiatives taking concrete measures towards net zero through the Climate Investment Coalition or the UN’s Net-Zero Asset Owner Alliance. Finally, investors should look to use the influence on company boards and managers afforded by their shareholdings. “We need asset owners and asset managers to use their voting power in the companies that they invest in and use it to accelerate plans,” said Hart.

Long-term investors also need to take account of asset risk profiles at every stage of the investment process to help accelerate the transition to a low-carbon economy, panellists suggested.

“A lot of private capital is necessary to finance this energy transition, so a critical focus on the risk questions that private investors will be asking, will help in putting the right policy frameworks in place to support the transition,” said Teresa O’Flynn, Managing Director, Global Head of Sustainable Investing, BlackRock Alternatives Investors.

The New York State Common Retirement Fund, with a goal of US$20 billion, has now set its priority on allocating more money to sustainable investments and climate solutions. State Comptroller Thomas DiNapoli said the fund took a highly proactive approach, through its passive investment strategies.

“We see great opportunities with the emerging low-carbon economy. With the companies we have invested in, particularly with our passive investing, we have a very aggressive engagement programme – we press them with shareholder resolutions and votes on board of directors to make sure they are disclosing GHG emissions. We ensure they have business plans that seek to reduce their carbon footprint, and I do think this role of engagement should not be minimised,” he said.

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