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PRI policy chief warns that capital markets ‘remain unsustainable’

wind turbines, climate change, ESG, LGIM

“We haven’t yet seen the transition necessary,” says Will Martindale, head of policy and research at campaign group Principles for Responsible Investment, (PRI) reflecting on the investment industry and its relationship with sustainability issues.

Martindale is speaking ahead of the Global Invest Forum conference in Paris which will see investment managers and asset owners gather from around the world to debate the biggest issues affecting the investment industry.

At the top of the agenda is the effects of Brexit, but Martindale will be attending to explore the conference’s other big topic: environmental, social and governance (ESG) investment.

He says there is now “widespread” commitment and “awareness” among investment companies, or intermediaries, for responsible investment topics, which is underlined by the number of companies now signed up to abide by PRI’s core values.

However, he adds that capital markets “remain unsustainable”. Governments and regulators have moved to support sustainability but it is not as deeply embedded in “portfolio construction” as it should be.

“The obvious example,” says Martindale, “is around degrees of warming. We have governments around the world that have committed to the Paris Climate Agreement to run below two degrees of warming. And yet we know that capital markets are financing 3.5, sometimes four, degrees.

“We believe responsible investment is one of the ways that can be addressed, but we’re not seeing the depth of commitment that we think is necessary to achieve that transition.”

Integrating sustainability

Aside from the efforts of organisations like PRI and national governments, perhaps the biggest project around to integrate sustainability thinking into the investment chain is taking place in the European Union. The EU’s Technical Expert Group on sustainable finance this year delivered a number of critical reports offering guidelines on climate-related information reporting.

Martindale describes the advice as “one of the best innovations that we see at a global level on sustainable finance topics”.

He says others countries, such as Canada, are moving in a similar direction. He also praises new investment disclosure rules, which he says have provided “clarity” and remove “any ambiguity as to whether or not ESG issues should be a component of investment decisions: they absolutely should be.”

The thrust of European rule making is also taking investors towards a “new paradigm”.

“The regulators are not just regulating the financial activities of investment practice but also beginning to regulate the real economy outcomes,” says Martindale.

Increased regulation

PRI recently published figures revealing that the world’s 50 largest economies have put in place more than 500 policy instruments and 730 hard and soft law revisions to back investors in using ESG factors.

In a recent white paper PRI found 80 new policy instruments introduced across the 50 countries so far in 2019, showing that policymakers had responded to the “urgency” of sustainability issues.

Martindale says there is “increasing recognition” that investors must act within policy and regulatory frameworks and are therefore increasingly “engaged” with public policy development.

More regulation is “inevitable” adds Martindale. “And that’s because we have a capital market…that is a long way from a 1.5 degree trajectory. And at some point that’s going to require policy action in order to change that.”

And while this discussion may seem to involve investment managers and asset owners, Martindale agrees that it does have implications for corporate boards and their companies. They can expect “further dialogue”, he says.

“Investors generally want to be part of supporting the companies that they invest in to make the transition.

“Perhaps, from a competitive perspective, we’re going to see investors increasingly cognisant of a company’s ability to navigate this transition as part of how they will allocate their capital and deploy their stewardship rights.”

For more information about the Global Invest Forum click here.

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Guidance: Thomas Cook employees: how to make a change to your online application

Guidance for employees of Thomas Cook about how to make changes to submitted applications […]

The Universities Superannuation Scheme (USS) – Non-Executive Director

Non-Executive Director – The Universities Superannuation Scheme (USS) Recruiter: The Universities Superannuation Scheme (USS) Location: London Salary: £35,735.00* p/a Posted: 22 Sep 2019 Closes: 08 Nov 2019 Job Function: Non Executive Director Industry: Education Non-Executive Director Fee: £35,735.00* p/a. London based (with occasional travel to USS’s Liverpool office) Universities Superannuation Scheme (USS), with c440,000 members, […]

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Brexit and ESG to top the agenda at the Global Invest Forum

Brexit, EU, Union Jack, flags

Investors from some of the biggest asset owners and fund managers across Europe are to gather in Paris to debate the implications of Brexit and the development of credible ESG (environmental, social and governance) policies.

The Global Invest Forum (GIF) takes place on the 10 and 11 of October and comes as Brexit negotiations flounder toward a 31 October deadline and amid mounting interest in the role of investors in tackling the climate crisis.

The UN Climate Change Summit this week saw the launch of a new project—the Net-Zero Asset Owner Alliance—in which asset owners pledged to push their investee companies for decarbonisation.

A statement from the GIF this week said investors are only recently coming to terms with the full implications of Brexit “which are considerable for the continents’ finance professionals”. But it added that there were upsides.

“Fortunately, not all of these repercussion are negative. While the distancing of the City will be a shock for everybody, it could also be an opportunity for the rest of the European Union.”

One of the key sessions at the conference will see Lord Peter Ricketts, a former British ambassador to France, discuss what to expect from Brexit. The conference’s first session will also see see Vittorio Grilli, former Italian finance minister, along with Leena Mörttinen of Finland’s finance ministry, discuss the impact of the recent European elections on investment and its stakeholders.

Integration of ESG

Meanwhile, ESG is a core focus of the conference. GIF said European investors were leading the integration of ESG principles into their investment policies.

“Surely, Europe is not alone in seeking this objective at this moment of universal awareness of climate danger,” GIF said, “but on no other continent have thoughts on this issue advanced so far, and on no other continent is the opportunity to build a new common business model being taken more seriously than in Europe.”

GIF’s discussion of ESG issues will involve some of the most respected figures in the investment industry. They will include Martin Spolc, head of the sustainable finance unit in the financial services directorate of the European Commission; Will Martindale, director of policy and research at Principles for Responsible Investment; and Florence Saliba, vice-president of finance and treasury at Danone.

This week, asset owners in the Net-Zero Alliance made a commitment at the United Nations to decarbonise their portfolios by 2050. That means immediate engagement with investee boards to talk about reforming business models to remove greenhouse gases.

Inger Andersen, executive director of the UN Environment Programme, said: “There are no short-cuts to decisive climate action.

“We need to take a long-term view. I applaud the leadership of the investors in this Alliance. Their commitment sends a strong signal that financial markets and investors are listening to science and moving us to a path of resilience and sustainability.”

Attendees at the GIF will include European and international asset managers, institutional investors, and banking and investment service providers.

The Global Invest Forum programme is available to view here.

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Look Ahead – Chair of Audit & Risk

Chair of Audit & Risk – Look Ahead Recruiter: Odgers Berndtson Location: London Salary: £12,500 per annum Posted: 19 Sep 2019 Closes: 11 Oct 2019 Ref: 73055 Job Function: Chair Industry: Not-For-Profit, Housing / Regeneration Position Type: Part time Chair of Audit & Risk, Look Ahead Time Commitment – c12-16 hours per month Remuneration – […]

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NHBS – Non-Executive Board Member

Non-Executive Board Member – NHBS Recruiter: NHBS Location: Totnes, Devon and London Salary: Annual remuneration appropriate to a small but successful business Posted: 19 Sep 2019 Closes: 14 Oct 2019 Job Function: Non Executive Director Industry: Retail / FMCG Non-executive Board Member Ecology and conservation business poised for growth Meetings in Totnes, Devon and London […]

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Cafcass – 3 Board Members

3 Board Members – Cafcass Location: London + Date Posted: 18/09/2019 Closing Date: 16/10/2019 Vacancy Description The purpose of the Board is threefold: to ensure good governance across the organisation, to add value to Cafcass’s strategic direction and programmes, and to ensure that Cafcass’ policies are compatible with those of the Secretary of State. The Board […]

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How corporate governance can drive a sustainable economy

sustainable economy, sustainability, growth

Last month, 181 CEOs of the US Business Roundtable committed “to lead for the benefit of all stakeholders”.

Surprisingly, this reopened a debate on what I thought was an already passé dogma of shareholder dominance—and it came from the US. But rather than more discussion, we should all now support these CEOs and make sure they walk the talk. The social and environmental crisis is a collective responsibility and it will not be alleviated without radical action from businesses.

But how to do that?

With indisputable scientific evidence that continuing on a path of endless growth is suicide, we urgently need ways forward. Accountancy Europe‘s publication, 10 Ideas to Make Corporate Governance a Driver of a Sustainable Economy, offers steps for boards to guide CEO action. It offers a constructive perspective by suggesting:

  • changes in boards’ roles and practices
  • legislative and non-legislative actions by EU and national policymakers and regulators.

In this article I will focus on the ideas that help businesses undertake the necessary changes to make sustainability the cornerstone of the decisions they make.

Corporate governance and a sustainable economy

Markets have proved to be a great transformative force: we need to leverage their power to move towards a sustainable economy. Boards can take the following actions to start transforming business toward sustainability:

Boards should seek to diversify professional competences and ways of thinking

  • Recognise their public interest responsibility to make business sustainable
    All boards must take their responsibility to put their businesses on an accelerated path toward sustainability and ensure the survival of the business. From a practical business standpoint, sustainability encompasses many matters that fall directly under the board’s strategic responsibility, such as: access to raw materials, energy efficiency, supply chain resilience, social license, attracting talent and contingency planning.
  • Transform the business model
    We will not be able to absorb the waste and pollution that our current economic system creates unless we rapidly move to a circular economy. At the micro level, it means transforming the business model. The board’s agenda must reflect this priority and monitor its progress. The board will need to broaden its approach to risk management including, e.g. the impact of stranded assets, environmental litigation and reputational risk. Boards also need to anticipate regulatory reforms that address climate and environmental challenges.
  • Make board composition fit for (renewed) purpose
    A new purpose requires new skills and a new approach. The people and processes in business decision-making will have to change to shift the agenda and drive it forward. The board will need to define a collective profile for its work as well as to evolve individual board members’ roles. It has been suggested that the chief financial officer should evolve into a chief value officer, who can evaluate the company’s value creation beyond financial success. Many qualified accountants can already fill this role. Boards should also seek to diversify professional competences and ways of thinking. Knowledge of sustainability issues relevant to the business has become critical. Most importantly, boards need members with the capacity to think laterally, challenge and speak-up. To this end, it is useful that different cultures, genders, social backgrounds and generations find their way into the boardroom.
  • Regularly (re)assess functioning and processes
    Board efficiency starts with putting effective processes in place to constantly assess the board’s functioning. In light of the vital sustainability challenge, Boards need to reinforce or develop:
    • objective director selection and recruitment procedures
    • ad hoc on-boarding and development programmes
    • balanced reward and retention policies
    • regular individual performance assessments
    • full board assessments.
    Each of these processes is instrumental to change and must integrate sustainability considerations. To help prevent complacency and groupthink, these processes need to have the necessary degree of independence and objectivity.
  • Think in an integrated way
    Boards need to integrate environmental and social considerations at all levels of the business and to take a fully integrated approach to strategy, management and reporting by:
    • a comprehensive approach to strategic planning including scenario analysis
    • managing change inclusively and efficiently through experimentation, decentralisation and empowerment
    • adopting the integrated reporting (IR) framework to measure transformative progress and share experience on issues that are of public interest.
  • Transcend the business’s boundaries
    The board needs to comprehend the entire supply chain, stakeholders and ecosystems of the business, at least to manage reputational risk from a narrow self-interested perspective. Appropriate due diligence needs to be conducted throughout the entire supply chain. Impacts on markets need to be analysed and measured, including full lifecycle assessments of products.
  • Act now, act swiftly

    Making our economic system sustainable is a collective responsibility. In their different capacities, professional accountants play a key role at all stages of corporate governance. Good business decisions start with reliable information. As businesses change their benchmarks for success, accountants contribute by: measuring impacts, disclosing information and providing trust.

    Competitiveness is important, but without a viable planet it doesn’t matter anymore

    The EU has been showing outstanding leadership. We encourage it to continue, including in multilateral forums, and taking decisive action even if others hesitate. Competitiveness is important, but without a viable planet it doesn’t matter anymore. The time is now to choose a more sustainable future. A first step for policymakers is to create coherent regulations for a level playing field so that frontrunners in sustainability are not disadvantaged compared to those that lag behind.

    Corporate governance needs to take a holistic approach, considering all aspects of doing business and prioritising the transition to a circular economy as this appears to be the only option in a finite world. Change starts today.

    This article and our publication aims to inspire debate, so we welcome your feedback. Read 10 Ideas to Make Corporate Governance a Driver of a Sustainable Economy and send your thoughts and opinions on how corporate governance needs to evolve to iryna@accountancyeurope.eu by 1 November 2019.

    Olivier Boutellis-Taft is CEO of Accountancy Europe.

    The post How corporate governance can drive a sustainable economy appeared first on Board Agenda.


    Major asset owners pledge to decarbonise portfolios by 2050

    climate change

    Boards are set to come under fresh pressure to act on the climate crisis after asset owners controlling $2.4trn in investments said they would decarbonise their portfolios by 2050.

    The announcement came in New York at the UN secretary-general’s Climate Action Summit. The project follows one of the biggest international climate school strikes so far and on the day campaigner Greta Thunberg appeared at the General Assembly to call for more government action.

    The new commitment, given by a new body—the Net-Zero Asset Owner Alliance—said it would begin engaging with boards immediately “to ensure that they decarbonise their business models”.

    Asset owners and managers signed up to the alliance include PensionDanmark, CDPQ, CalPERS, Nordea, Zurich, Allianz and Folksam. Inger Andersen, executive director of the UN Environment Programme, said in a statement that asset managers and owners needed to take a long-term view on climate action.

    “Their commitment sends a strong signal that financial markets and investors are listening to science and moving us to a path of resilience and sustainability,” she said.

    Exerting pressure

    Fiona Reynolds, chief executive of Principles for Responsible Investment (PRI), a campaign group and member of the Net-Zero Asset Owner Alliance, spoke of the pressure asset owners are able to exert on company directors through their fund managers.

    “Pension funds and insurers who own large pools of assets are at the top of the investment chain in that they can direct, mandate, the companies they invest in to move from carbon-intensive energy sources to more sustainable ones.

    “They have the ability more than any other investors to move this agenda forward by outlining the material risks of climate change to those managing their assets.”

    Christiana Figueres, convenor of Mission 2020, a campaign group for climate action, said: “The urgency of the climate crisis demands decisive leadership so it is encouraging to see asset owners flex their muscles and guide companies they’re invested in towards a net-zero emission world.”

    Urban Angehrn, group chief investment officer at Zurich, said: “Our customers across the globe are facing the challenges associated with climate change already today.

    “That is why we strongly believe that asset owners like Zurich must act now to tackle those challenges, in particular by leveraging capital markets to fund solutions to the pressing environmental issues of our time.”

    Attitudes to ESG

    The creation of the Net-Zero Asset Owner Alliance comes as a new report commissioned for the UN revealed that the five-year period 2015-2019 is the hottest on record; the loss of sea and glacier ice continues unabated; the oceans are becoming acidic; and the levels of the main greenhouse gases in the atmosphere have “reached new highs”.

    Investors are not alone in acting on environment, social and governance issues. A recent report from PRI concluded that the world’s 50 largest economies have put in place more than 500 policy instruments and 730 hard and soft law revisions to back investors in using “long-term value drivers”, including ESG factors.

    PRI also says more policy measures are inevitable, and that countries are moving away from “sporadic” green policies to “comprehensive national sustainable finance strategies”.

    In a sign some optimism about attitudes to ESG issues in the US, a recent report from proxy advisers ISS concluded that investors and boards were increasingly in agreement over many issues.

    According to Patrick McGurn, special counsel and head of strategic research at ISS, the figures indicate that “engagement is working”. The number of environmental proposals being agreed are “especially compelling” McGurn added.

    “That shows that they [investors] have gotten boards’ attention on those matters and boards don’t just push away investors when they want to raise E and S [environmental and social] concerns.”

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    Merseyside (HM Prison and Probation Service) MAPPA – Lay Adviser

    Lay Adviser – Merseyside (HM Prison and Probation Service) MAPPA Location: Merseyside Date Posted: 18/09/2019 Closing Date: 01/11/2019 Vacancy Description Attend each Strategic Management Board (SMB) meeting. Contribute to the monitoring and evaluation of the operation of MAPPA in Merseyside. Attend a level 2 or 3 MAPP meeting quarterly, to assist in understanding the process […]

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