California dreaming

Responsible investment by the bay

Taking place in a different location each year, the PRI in Person conference brings together signatories of the United Nations Principles for Responsible Investment (PRI) and other investment professionals to discuss all of the pressing issues that responsible investors are facing.

I attended this year’s conference in San Francisco, and with 1,200 delegates it was the PRI’s largest gathering yet. There was a huge amount of positive energy, amplified by the razzmatazz of the Global Climate Action Summit (GCAS) down the road, and a call for action to ‘walk the walk’ following numerous commitments on climate change. It was also a push to increase the focus on some of ESG’s (environmental, social and governance) other areas of challenge.

Mindful of the influence of spending four days firmly ‘inside the ESG tent’, it’s nevertheless clear that ESG has made it into the mainstream, with investors across geographies now expected to demonstrate at least a basic level of integration. The US lags Europe, but its market dynamism and competitive spirit suggest it won’t remain there for much longer. US investors who have led the way on Impact or mission-driven investing over the past decade have established the credentials – and the lexicon – to drive broader uptake, while industry leviathans BlackRock and Vanguard are now leading the charge. Asia is catching up too from a low base, propelled by Shinzo Abe’s ‘third arrow’ reforms in Japan and a raft of Stewardship codes across the region, but maybe more powerfully by a dynamic and fast accelerating sustainability agenda in China. Regulation in all three key regions is increasing pressure on both investors and corporates, using more stringent disclosure requirements as a rather mundane but effective policy tool.

Focus topics at the conference ranged from climate change to modern slavery; from dealing with the barriers around ESG integration to clarification on legal investor duties on ESG; and from the economics of inequality to the influence of politics. And the SDGs (the UN Sustainable Development Goals) are increasingly being adopted by investors (and companies) as a sustainability framework in various forms.

While all of these topics are of obvious interest to responsible investors, it was the risks (and opportunities) presented by climate change that dominated the agenda, fuelled by the nearby GCAS summit, convened by California Governor Jerry Brown. The summit called for a step up in the global efforts to work towards the Paris Climate Agreement, with representatives from countries, states, cities and businesses coming together to make commitments to reduce emissions in alignment with the Agreement. Everyone from former US VP Al Gore to London and New York mayors Sadiq Khan and Bill de Blasio, and Indiana Jones himself (aka Harrison Ford) got in on the act.

Closely linked to this – and an area that has arguably received insufficient attention versus the higher profile issue of carbon emissions – is the crucial role played by forests in mitigating climate change. Deforestation due to illegal logging, livestock farming and cultivation of in-demand agricultural products such as soya and palm oil, not only destroys priceless natural ecosystems and erodes biodiversity, but also affects the vital role of forests as carbon sinks. Regulation seems to be failing, however, given limited oversight and the strong economic incentives to bypass it. To redress this, there were announcements of major public/private initiatives to address these issues via reforestation programmes and increased supply chain scrutiny.

These initiatives are not just ‘California dreaming’, but rather are concrete attempts to create a more sustainable planet – to ‘walk the walk’ – demonstrating that investors have a major part to play if this is to be achieved.

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