Over the last decade, stewardship and sustainability have evolved rapidly, driven by a mixture of growing investor demand (asset owners), increased sophistication to manage risk (asset managers), improved reporting (companies) and enhanced regulation (policymakers). We expect further evolution in these areas with an increased focus on real-world impact.
Impact investing has become significantly more prominent as investors focus on the intentionality of their investments and seek to generate positive impact alongside financial returns.
Impact can be achieved through different means – the activity and actions of companies, or the commitment of capital to these investments alongside the stewardship activities of investors.
Historically this has focused on private capital provision to drive impact and has ignored the role that structured investor stewardship can play. An interesting recent development has been the publication from the Global Impact Investing Network (GIIN) on Guidance for Pursuing Impact Investing in Listed Equities1.
This builds on the recognition that all businesses (and therefore, by extension, all investments), have effects on people and on the planet – both positive and negative. We believe this report begins to recognise the important role that stewardship can play in achieving impact, and we expect that investors will look at the role of public equites in generating impact as a key focus for 2023.
In this context we are very excited to announce the establishment of our Stewardship, Sustainability & Impact (SSI) team. The SSI team is led by David Sheasby, who serves in dual roles as Martin Currie’s Head of Stewardship, Sustainability & Impact and Franklin Templeton’s Stewardship and Sustainability Council Co-Chair.
The team includes new portfolio manager Lauran Halpin, who joins the team from Franklin Templeton. With more than 16 years of investment experience, Lauran Halpin will lead the team’s new impact portfolio management capabilities. These will include responsibility for managing a dedicated impact driven investment strategy, focused on listed equities.
Against this backdrop we continue to enhance our approach to stewardship, sustainability and impact.
During 2023, climate will remain a key issue with an increased sense of urgency for action as the window for limiting climate change rapidly closes.
We see an enhanced focus from regulators (e.g., emissions reporting and, in some cases, mandatory reporting through the Task Force on Climate-Related Financial Disclosures) and investors through the potential expansion of collaborative engagements (e.g., Climate Action 100+). COP28, due to be held in the United Arab Emirates at the end of the year, will see the first ‘global stocktake’ – effectively a comprehensive assessment of progress against the goals of the Paris Agreement and as such will mark a significant moment in the journey.
Biodiversity is a related, but separate, issue supported by the emergence of new reporting frameworks, and we expect to see progress in this area over the course of 2023.
The Taskforce on Nature-related Financial Disclosures (TNFD) has already published the final version of their framework for consultation2 and we are exploring some of the tools that can help investors identify, quantify and manage the associated risks and impacts.
Human rights, social issues and inequality will have increased prominence as stewardship topics, and we are also seeing the emergence of regulation in this space.
In December 2022, the PRI launched a collaborative engagement on human rights and social issues called Advance, which is backed by more than $30 trillion in AUM.
We are leading the engagement for one of the companies in this.
We believe that the formation of the International Sustainable Standards Board (ISSB) is a landmark in the evolution of sustainability reporting standards.
The ISSB is setting out to establish a comprehensive global baseline for high quality sustainability disclosure standards to address an information void for investors by creating consistent, comparable and verifiable sustainability disclosures standards.
What underpins this however is enabling effective capital allocation, improving business and sustainability performance and embedding sustainability disclosures in the capital market infrastructure on a par with financial reporting.
We expect the pace of regulatory change to remain high with developments in the US and in the UK likely to be highly prominent and a continued underlying focus on enhancing transparency and eliminating greenwashing.
In 2023, asset managers will be asked to demonstrate their authenticity in managing sustainability and stewardship risks on behalf of investors.
In the United Kingdom, we will see the emergence of the Sustainability Disclosure Regulation (SDR), which aims to tackle greenwashing and will set a very high bar for products to be called sustainable.
In Europe, we expect continued tightening of regulation around how funds are categorised. Finally, in the United States, we should see the next stage of the emerging naming and disclosures regime on environmental, social and governance-labelled products.
These developments will be critical for asset managers to effectively deliver the products and the outcomes that investors seek.
Against this backdrop we continue to enhance our approach to stewardship, sustainability and impact with a focus on supporting our investors, working with investee companies and ultimately delivering for our clients.