The UN Framework on Climate Change (UNFCC) is meant to Convening of the twenty seventh Annual Conference of the Parties, commonly often known as COP27, next week in Sharm el-Sheikh, Egypt. The aim is to evaluate global progress in addressing and mitigating the consequences of climate change, and countless voices will seek to influence the dialogue.
The global community of asset owners will provide a robust and influential voice to the method. This group, consisting of pension funds, sovereign wealth funds, foundations and endowments, is increasingly engaged and outspoken on environmental, social and governance (ESG) issues. And in keeping with Willis Towers Watson, the highest 100 asset owners control $23.5 trillion in assets in 2020, so that they have a superb likelihood of being heard.
The voice of the asset owner
Roger Urwin of Willis Towers Watson’s Institute for Forward Thinking believes that asset owners have an important role to play in the worldwide debate on climate change.
“Their allocations, ownership strength and influence will be important in opening the door to net-zero pathways,” he said. “The [2021] The COP Summit in Glasgow highlighted how asset owners can work together inside a broader collaborative framework to deliver higher long-term outcomes for the entire system.”
As a bunch, asset owners take ESG and climate change very seriously. Indeed, in keeping with our first Morningstar Voice of the Asset Owner surveypublished in August, 85% of asset owners consider ESG is “very” or “somewhat” necessary to investment policy, with 70% saying it has change into more necessary during the last five years.
The aim of our survey was to know asset owners’ opinions and attitudes towards investment policies, current investment trends, the impact of regulatory changes, key stakeholders and influencers and, most significantly, the role that ESG plays in investment decisions. The results are insightful as COP27 approaches, and we consider how asset owners can exert their influence on this necessary issue.
The asset owners surveyed are pushing for constructive changes within the areas of ESG and climate on several fronts. For example, most respondents felt that ESG rankings, indices, data and tools have improved either “a lot” or “somewhat” over the past five years. However, they assume that governments, rating agencies, standards bodies, service providers and markets will introduce further improvements. In other words, asset owners wish to a lot of key participants across the ESG ecosystem to drive change.
When it involves implementing ESG policies, around 40% of asset owners surveyed use external asset managers and are more likely to outsource key elements of their investment policies, comparable to proxy voting. More than two-thirds say stewardship is a “fairly” or “very” necessary a part of their ESG program, including direct and collaborative engagement.
Asset owners generally view ESG regulation as helpful in combating greenwashing through greater transparency, more enforcement and higher regulation. In addition, almost three quarters supported regulations which are intended to attain certain sustainability goals.
Words change into actions
While it is crucial to advance the general public debate on ESG, asset owners have proven time and time again that actions speak louder than words. They have been instrumental in the event of ESG practices over the past few many years, often filling the gap left by the shortage of effective public policy by engaging alone and collectively through initiatives comparable to… Climate protection 100+.
Asset owners were among the many first investors to demand disclosure of corporate sustainability issues, signaling that ESG matters to their investment decisions. They have used their influence to have interaction with corporations on environmental issues comparable to carbon emissions, waste management and pollution, in addition to social issues comparable to management and board diversity, fair labor practices and treatment of indigenous peoples, and best corporate governance practices.
COP26 led to the creation of the Glasgow Financial Alliance for Net Zero (GFANZ), an umbrella organization made up of separate alliances for asset owners, asset managers, banks, insurers, advisors and financial services providers.* The implementation of GFANZ’s promise will rely on funding from major asset owners who’ve a positive stance towards regulation with specific objectives expressed like “net zero by 2050” in our survey. The COP27 agenda will concentrate on financing the transition to a low-carbon economy. Bank commitments to scale back financed emissions have change into a contentious issue within the United States, where corporations and asset managers are already under scrutiny from politicians for his or her support of ESG investing. Amid reports that banks are reneging on their commitments on this area, asset owners are fighting back. This highlights the challenges of addressing net-zero emissions amid energy market volatility, geopolitical turmoil and political polarization. However, it’s consistent with our survey results that energy management and greenhouse gas emissions are probably the most material ESG issues for asset owners.
Addressing a “wicked problem.”
The Conference of the Parties (COP) has been meeting for over 1 / 4 of a century to evaluate global progress in combating climate change. This ambitious process goals to secure voluntary national carbon reduction commitments and financing, in addition to follow-up and progress reports. They reflect the challenge of collective motion within the face of an inherently complex and difficult to unravel “wicked problem” comparable to climate change, where tensions arise between developing and developed countries over burdens, costs and equity. It is a problem that requires influential, consistent and honest voices to advance the talk through each words and actions.
The global community of asset owners is one among these necessary voices.
If you enjoyed this post, do not forget to subscribe.
* For full disclosure, Morningstar Inc. is committed to achieving net zero by 2050 and is an energetic participant within the Net Zero Financial Service Providers Alliance (NZFSPA) Indexes and Research & Data workflows.
Photo credit: ©Getty Images/ioanna_alexa
