Thursday, May 19 2022

It will be difficult to beat 2021 when it comes to ESG news, but 2022 promises to be just as busy, with more regulation and increasingly active institutional investors.

For investors, climate change will continue to dominate ESG priorities in 2022 as they step up efforts to decarbonize portfolios and seize opportunities in the clean energy transition. Other issues such as biodiversity, board and workforce diversity, and human capital management will also be on the radar of many investors.

In November, the United Nations climate change conference, COP26, in Glasgow caught the world’s attention with the enormity and urgency of the climate crisis. It also sent the message to institutional investors that meaningful progress depends on them more than ever.

Many pension funds and asset managers are taking this to heart, moving even faster to achieve net zero emissions in their portfolios by 2050 or earlier. Groups like the Net-Zero Asset Owner Alliance, with collective assets of $ 10,000 billion, and similar groups for asset managers and consultants, have made this commitment. More than half of its members, including Sacramento, California’s $ 500 billion public employee retirement system, have pledged cuts of 25% or more by 2025, and similar commitments keep coming.

To meet their net zero goals, pension funds like the C $ 114 billion ($ 89 billion) Ontario Municipal Employees Retirement System in Toronto will spend the coming year calculating the footprint. total carbon from their portfolios to develop net zero plans.

In early 2022, more owners and asset managers will also produce individual climate action plans, predicted Reverend Kirsten Snow Spalding, senior program director for the Ceres Investor Network in Berkeley, Calif., Including more of 200 institutional investors manage more than $ 47 trillion. in assets. This will put more emphasis on accountability, she said. “It’s not enough to have goals without plans. You have to hold everyone accountable,” Ms. Spalding said.

The net-zero plans of asset owners make them more aggressive towards the companies in which they invest, or from which they increasingly divest. On December 20, the same day that London’s £ 20bn ($ 26.8bn) National Employment Savings Trust pledged to cut 30% by 2025 in Carbon footprint of its portfolio of publicly traded stocks and bonds, it has sold stakes in five energy companies that it hasn’t seen working quickly enough to deal with climate risk.

New York State’s $ 267.8 billion pension pool, Albany, has pledged to divest energy companies without a plan to cut emissions and transition to fossil fuels. In December, the pension fund confirmed that it would internally manage a $ 2 billion passive fund indexed to a climate change risk index FTSE Russell.

A perceived lack of progress on energy transition plans led the € 523 billion ($ 591.3 billion) pension fund Stichting Pensioenfonds ABP, Heerlen, the Netherlands, to commit to dedicate 2022 to the sale of all its stakes in fossil fuel companies, worth 15 billion euros, and to reinvest only in renewable energy strategies. Other pension funds, like three public funds in Baltimore, are being told by lawmakers to divest from fossil fuels.

COP26 also brought good news to investors that global standards for climate disclosure in financial markets are being developed. The International Sustainability Standards Board, unveiled by the global accounting body International Financial Reporting Standards Foundation, aims to publish standards by mid-2022 that local jurisdictions and public or private companies could voluntarily adopt.

“This is a very important and positive development. Alignment around what is relevant to investors and how to measure it is essential, ”said Ken Mehlman, Co-Head of KKR Global Impact in New York and Partner and Co-Head of Global Affairs at KKR & Co. Inc. KKR Global Impact invests in scalable business solutions to solve critical global challenges.

KKR helps lead a Ceres private equity task force helping general and limited partners address the impacts, risks and opportunities of climate change in line with the goals of the Paris Agreement.

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