This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

PRI: Five Things We Learned

FTSE Russell

Contributor:
FTSE Russell
Visit: FTSE Russell

By:

Group Head Of Sustainable Business

Last week’s PRI in Person event in Paris was huge on a number of levels. Here are five take-aways.

Sustainable Investment is now well established

With over 2300 signatories today with combined assets under management of over $80T, the conference was the largest ESG investment event ever held globally with a huge range of asset owners and managers, regulators and policymakers rigorously debating and challenging the market’s thinking on complex sustainable investment challenges. We took part, as FTSE, in the workshops in 2005 that led to the launch of PRI in 2006 where we were one of just 100 founding signatories. It’s come a long way since then.    

Climate risk is a central theme

Climate change inexorably rises up the agenda not only in public sentiment and protests but on the global financial agenda through regulators such as the Bank of England and FCA convened Climate Risk Forum, and the Financial Stability Board’s task force on climate related financial disclosure (TCFD). On the first full day of the conference, Nathan Fabian, the PRIs’ director of policy, set out their new “Inevitable Policy Response” work-stream led by Mark Fulton, formerly of Deutsche Bank. This project is a likely “base case” expectation of forceful, abrupt and disorderly government responses to climate change in a 5-10 year period that will cause massive disruptions to investors and capital markets. This work-stream will consider how investors can prepare themselves for this eventuality.

In a neat follow up to this session, Royal Dutch Shell CEO Ben van Beurden took the stage alongside Sylvia van Waveren of Robeco and Adam Mathews of Church of England and the Transition Pathway Initiative (TPI). Through the TPI and its sister investor collaboration platform, Climate Action 100+, there has been very effective investor engagement with Shell on climate, leading them to take five important steps:

1. setting short and long-term climate targets, including reducing the carbon footprint of their reserves and product portfolio
2. building this into executive remuneration
3. annual reviews of progress
4. reporting alignment with TCFD 
5. review of corporate lobbying which has led them to exit one industry association and working to shift the climate policy position of others.

FTSE Russell continues to be a proud supporter and partner of TPI, and we are delighted with their progress. Expect much more to come here.

Shifting focus from equity to fixed income, and growing appreciation of index investing

In the early days of ESG investing, equities were at the forefront of the debate, while fixed income was less frequently discussed, and innovation was less commonplace. This is despite the fact that, globally speaking, fixed income markets are three times the size of stock markets. This imbalance is changing, as investors start to demand more choice in ESG solutions in fixed income (and other asset classes). This was also evident in the PRI agenda, where fixed income and credit risk sessions are becoming more prevalent. One area particularly underserved has been sovereign bond markets, which is an area Beyond Ratings (now part of FTSE Russell/LSEG) has much to offer, and whose expertise drove the creation of the recently launched Climate World Government Bond Index (Climate WGBI).

Given the growing focus on climate risk and ESG integration into passive investing, there was also a consultative session looking at the challenges and opportunities around integration into index design and stewardship. We contributed alongside the French pension fund FRR and the finance focused NGO ShareAction, and asked the attendees to help the PRI consider its role in this part of the market as it grows and evolves rapidly.

Academic research no longer just for academics

PRI also has an Academic Network that usually holds a one-day conference just ahead of the main event. The academic research has been improving steadily year-on-year both in quality and in relevance to the investment industry. This year we attended the aligned Global Research Alliance for Sustainable Finance and Investment, or GRASFI conference at Oxford University just the week before the Academic Network event. (GRASFI is a coalition of 25 universities specializing in these fields.) The research presented was impressive; to provide just a few examples of research on sovereign climate credit risk modeling, the application of machine learning to ESG data, measuring the effectiveness of collaborative investor engagement and the stock return implications, and the impact of climate disclosure regulations. Clearly, the importance of applying academic rigor and validation is becoming increasingly important as the sophistication of sustainable investing grows along with the variety of tools, data, analytics and approaches.

Asset owner collaboration and Universal Investor theory 

It is not a new concept that many of the largest asset owners are invested so broadly that they need to take a holistic view around enabling and supporting global sustainable economic growth rather than only chasing returns at the micro-fund level. But the number of asset owners who are talking about this concept is growing, and there is increasing cross learning, collaboration and action between asset owners, including through the prism of PRI. This is driving a more global and shared agenda of action, covering everything from designing mandates to incentivize more long-termism by asset managers, approaches to passive, collaborative corporate engagement and regulator/policy maker engagement. The largest pension fund in the world is the $1.3T GPIF in Japan, and their CIO, Hiro Mizuno, set out their ambitions here, as well as announcing an intention to select more global ESG index funds across equities and fixed income. As the world’s biggest asset owners get serious at re-allocating their investments, the market has to deliver the solutions to enable them to act.

Originally Posted on September 20, 2019 – PRI: Five Things We Learned

Disclosure: FTSE Russell

Interactive Advisorsa division of Interactive Brokers Group, offers FTSE Russell Index Tracker portfolios on its online investing marketplace. Learn more about the Diversified Portfolios.

This material is not intended as investment advice. Interactive Advisors or portfolio managers on its marketplace may hold long or short positions in the companies mentioned through stocks, options or other securities.

© 2019 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “The Yield Book®”  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE Canada, Mergent,  FTSE FI, YB.  FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided “as is” without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell indexes or research or the fitness or suitability of the FTSE Russell indexes or research for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell indexes or research is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this blog or links to this blog or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this blog or accessible through FTSE Russell indexes or research, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB, and/or their respective licensors.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from FTSE Russell and is being posted with permission from FTSE Russell. The views expressed in this material are solely those of the author and/or FTSE Russell and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

trading top