We recently attended the 13th annual PRI in Person conference, which was held in Paris. The conference, organized by the UN-sponsored Principles for Responsible Investment (PRI), continues to engage actors across the responsible investment industry, bringing together asset owners, investment managers, service providers, governments and non-governmental organizations. This year’s theme was ‘responsible investment in an age of urgent transition’, which referred to both the increasing pressure to address climate change and to the rise of populism and isolationism in politics (and the associated social risks), though the two issues are also inextricably linked. This year there were around 1,500 attendees, representing 838 organizations and 54 countries – a 33% increase compared to last year’s conference in San Francisco.
Since we discussed our experiences at the 2017 PRI in Person conference in Berlin, the desire for imminent climate action has increased significantly. The need for thoughtful and coordinated action is now very much the consensus, and the divergence of views appears to have reduced. Companies and asset managers alike face increasing pressure to consider and openly discuss the climate-related risks and opportunities that they face. The Task Force on Climate-related Financial Disclosures (TCFD), championed by Bank of England Governor Mark Carney, is the leading framework assisting companies in thinking about these physical and transitional risks, and offers a means of transparent and standardized reporting which is relied upon by numerous stakeholders. We can only envisage that the adoption of TCFD reporting will increase, as investors continue to demand greater transparency from companies, and as governments across the globe continue to think about the systemic risk that is climate change.
The Social Challenges of Climate Change
The discussions around climate change have also moved on from a focus on energy transition (referring to the need to reduce fossil-fuel exposure and increase adoption of renewable energy), to the need for a ‘just transition’, which primarily refers to managing the social challenges associated with climate change and the shift towards a low-carbon economy. While it is widely accepted that an energy transition is required if the world is to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit) – the limit set by the Intergovernmental Panel on Climate Change (IPCC) – the discussions around a just transition are more varied, and raise many questions, such as:
- How do we begin to define such a politicized concept?
- What roles should investors and governments play in setting the agenda and driving change?
- What are the needs of different countries, given that the Paris Agreement states the transition should be achieved ‘according to national priorities’?
- How will policy support this transition?
- How do we engage vulnerable groups that are at risk of being left behind?
Clearly, there is work to be done as we all grapple with these complex questions.
With climate change likely to have an impact on sea levels, access to water, agricultural systems, and the habitability of regions, as well as causing an increase in extreme weather events, it is impossible to ignore the fact that it will affect humans across the globe. Estimates suggest that there will be around 150 million climate migrants by 2050. Anticipating both the type and extent of these social impacts is as difficult as estimating the precise impacts of climate change; there are just too many variables. Climate change and our response to it can also bring economic uncertainty: those relying on coal mining, for example, are extremely fearful of the movement towards fossil-fuel divestment and mine closures, as their communities and families are entirely dependent on coal for their livelihoods.
Collaboration is Crucial
The overwhelming question of how to deal with these issues will require national and supranational coordination, with local and regional focus. It is clear to us that much more consideration for the just transition is required, and collaboration across industries and nations will be crucial to help achieve meaningful change, and ensure that risks and opportunities are not born entirely unequally. While these challenges are daunting, it is pleasing to see that awareness is being raised for the social, as well as environmental, implications of climate change.
The Principles for Responsible Investment offer a platform for this collaboration, and encourage all actors within the industry to consider these difficult questions as we go about our day-to-day roles, whether as asset owners, service providers or investment managers. We are proud to have been a PRI signatory for over a decade, receiving A+ grades in all possible categories during our latest assessment, and we continue to use the principles to guide our responsible investment decisions.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that strategy holdings and positioning are subject to change without notice.
This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Newton Investment Management Limited is authorized and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. 'Newton' and/or 'Newton Investment Management' brand refers to Newton Investment Management Limited. Newton is registered in England No. 01371973. VAT registration number GB: 577 7181 95. Newton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.
Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including Newton and (iv) representatives of Newton Americas, a Division of BNY Mellon Securities Corporation, U.S. Distributor of Newton Investment Management Limited.
Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2006 The Bank of New York Company, Inc. All rights reserved.