Investor engagement with corporates on sustainability is gearing up, but has its limits.
The message of today’s 52nd Earth Day – Invest in Our Planet – is aimed only partially at investment professionals. We must all play our part, the organisers note. A key focus of the Earth Day Climate Action Summit is the role of regenerative agriculture in restoring the Earth.
Investors are already beginning to support the shift to more sustainable farming, forestry and land use. In this week’s ESG Interview, SLM Partners’ Paul McMahon highlights opportunities, despite the challenges of scaling up investment in regenerative projects, given their current typical small size and lack of track record versus other real assets.
As noted by Rebecca Craddock-Taylor, Director of Sustainable Investment at Gresham House, “The opportunity for investors is now to support the growth of innovative companies and alternative investments that create solutions for a greener and more sustainable future for all.”
But there is also much that needs fixing with our existing agriculture, forestry and food systems. Today’s FT reports that JBS, the world’s largest meat-packer, has increased its carbon emissions by 50% in the last five years, overtaking Italy in the process.
Yesterday, activist investor Carl Icahn urged shareholders to support independent candidates for the board of McDonald’s, citing the fast-food chain’s ongoing animal welfare violations, supply chain lapses and related ESG failings.
Icahn also took aim at asset managers. “If the ESG movement is to be more than a marketing concept and fundraising tool, the massive asset managers who are among McDonald’s largest owners must back up their words with actions,” he warned. “While many ESG policies cover a host of sustainability and supply chain issues, it is unacceptable and irresponsible that major asset managers have put such little emphasis on animal welfare in their stewardship and voting guidelines.”
Those words will sting, potentially spurring more institutions to support the soon-to-be-launched Nature Action 100 initiative, which aims to step up engagement by asset managers and owners with investee firms to increase awareness and action against biodiversity loss and other nature-related risks and impacts.
Despite continued scepticism, there is evidence that investor engagement is finding its voice and its teeth. New platforms are ensuring fund managers and trustees act in concert on stewardship; new toolkits are being developed and shared to promote best practice in engagement, voting and escalation.
These innovations, along with initiatives such as the Global Biodiversity Framework and the Task Force on Nature-related Financial Disclosures, will help direct capital toward sustainable use of natural resources. But decision-making will be complicated by increasing risk and uncertainty, with Britain’s National Farmers’ Union warning of the biggest production crisis since WWII and the World Bank predicting a “human catastrophe” as Russia’s invasion of Ukraine impacts food supplies.
These challenges are beyond the scope of investors alone. To build a resilient and sustainable food system “greater collaboration between private capital, our farmers and public policy is essential”, according to Rob Appleby, CEO of The Cibus Funds.
In recognition, investors are appreciating the importance of engagement with policymakers as well as investee firms. The Principles for Responsible Investment this week called for regulatory changes in Europe to enable investors to pursue impact more freely. Recently, the Net Zero Asset Owner Alliance emphasised the need for greater policy engagement to enable portfolio decarbonisation. NA100 said it will target policymakers for engagement alongside corporates.
As noted above, we all must play our part. Perhaps Vote for Our Planet would be a suitable slogan for next year’s Earth Day.