Since the dawn of sustainability investing, more than 15 years ago, the debate over the balancing act of active risk, tracking error and sustainability has persisted. This session looked the relationship and how various investors tackle the debate.


Speakers
Marc-Olivier Buffle, head of thematic research and client portfolio managers, Pictet Asset Management (Switzerland)
Eric Farls, senior portfolio manager, and ESG committee member, Maryland State Retirement and Pension System (United States)
Charles Hyde. head of asset allocation, New Zealand Super (New Zealand)


Chair
Amanda White, director of institutional content, Conexus Financial (Australia)

What does it really mean to implement a net zero strategy? As more and more investors make pledges for net zero they are tasked with setting a strategy to achieve these goals. This session looked at the challenges of implementation including what behaviour changes are needed and how investors really need to allocate.


Speakers
Michael Cappucci, managing director, sustainability, Harvard Management Company (United States)
Bertrand Millot, head of sustainability, CDPQ (Canada)
Fionna Ross, head of sustainability institute, Americas, ABRDN (United States)
Rachel Teo, head of total portfolio sustainable investing and head of sustainability, GIC (Singapore)
Charles Wu, chief investment officer, State Super (Australia)


Chair
Fiona Reynolds, chief executive, Conexus Financial (Australia)

As carbon emissions continue to rise investors need to innovate on the nature of investment mandates says Colin le Duc, a founding partner of Generation Investment Management. He says real world impact is going in the wrong direction, even though sustainable investing is booming, and the credibility of transition plans is under scrutiny.

 

What is the Fiduciary Investors series?

Through conversations with academics and asset owners, the Fiduciary Investors Podcast Series is a forward looking examination of the changing dynamics in the global economy, how decision making should adjust for different market pressures and how investors are positioning their portfolios for resilience.

The much-loved events, the Fiduciary Investors Symposiums, act as an advocate for fiduciary capitalism and the power of asset owners to change the nature of the investment industry, including addressing principal/agent and fee problems, stabilising financial markets, and directing capital for the betterment of society and the environment.

Like the event series, the podcast series, tackles the challenges long-term investors face in an environment of disruption,  and asks investors to think differently about how they make decisions and allocate capital.

This panel looked at effective stewardship practices and explored collaboration and targeted campaigns. Through case studies this session examined the next generation strategies and tools for effective investor engagement and what frontier topics investors should be considering.


Speakers
Louise Davidson, chief executive, ACSI (Australia)
Marie Laure Schaufelberger, group head of ESG and stewardship, Pictet Group (Switzerland)
Aeisha Mastagni, investment director, sustainable investment and stewardship strategies, CalSTRS (United States)


Chair
Fiona Reynolds, chief executive, Conexus Financial (Australia)

This session examined research from the Woodwell Climate Research Centre that assesses the socioeconomic risks associated with climate change and shows how societies and economies will cross critical thresholds and face new vulnerabilities over less time than the duration of a typical mortgage. It highlighted the role the private sector can play and the importance of integrating the insights of climate science into decision making the same way financial and cyber risks are.


Speakers
Chris Goolgasian, director, climate research and portfolio manager, Wellington Management (United States)
Zach Zobel, scientist, Woodwell Climate Research Center (United States)


Chair
Fiona Reynolds, chief executive, Conexus Financial (Australia)

ESG presents a strong opportunity for businesses to differentiate themselves, but there are a number of common mistakes businesses make along the way, according to widely respected business author and Harvard Business School professor George Serafeim.

Speaking with Fiona Reynolds, chief executive of Conexus Financial, at the Sustainability in Practice forum held at Harvard University, Serafeim said ESG is an opportunity to understand how good management and good governance can make a difference in all sectors of the economy.

Companies that tap into “animating forces” such as a strong feeling of purpose among staff will be better positioned to differentiate themselves and potentially lead the industries of the future.

Serafeim is the Charles M Williams Professor of Business Administration, and faculty co-chair of the Impact Weighted Accounts Project at Harvard Business School. He is the author of ‘Purpose+Profit: How Business Can Life Up the World.’

“I don’t adopt the exclusionary perspective, where you withdraw from things, but rather the question is one of how do you deploy skills and capabilities to improve things inside companies, and as a result drive change inside organisations,” Serafeim said.

Serafeim said there are four fundamental aspects of driving change inside organisations: measurement, analysis, strategy and communication.

Unfortunately many companies have “made the fundamental mistake of starting from the fourth step and allowing for reporting to drive strategy, rather than the other way around.” Under pressure to become transparent, being reactive to this pressure can lead to the wrong business decisions, he said.

Management teams need to step back and look at how climate change, water related issues, safety-related issues, workforce inclusion concerns and other issues are affecting their businesses. These issues are not equally important for all companies, and the adaptive capacity of different management teams differs dramatically as well.

A typical mistake companies make is they “are trying to make the measurement perfect,” this takes too long and they get stuck at this point. An 80/20 approach, instead, would involve the company saying “that’s good enough, we kind of understand where we are,” and then pressing forward.

Next the company needs to engage the management team into analysis of the findings, and a typical mistake at this point is management teams move quickly from measurement to strategy without properly analysing.

“Not every metric actually matters from an analysis perspective,” Serafeim said, and different businesses have different levels of sensitivity to the same information, with some able to be more adaptive. Some sectors and regulatory regimes may allow large values to be passed down the value chain.

When it comes to developing strategy, this sometimes becomes confused with operational effectiveness, he said. “Strategy is not about that,” Serafeim said. “Strategy is about what makes you unique and allows you to have a unique competitive positioning. A lot of the ESG issues that we have found in our research are actually operational effectiveness issues.”

These operational effectiveness issues are quickly codified as best practice and “get imitated pretty fast” leaving behind the question: “How are you differentiated?”

Then on the communication front, another mistake a lot of companies make is doing a lot of communication about efforts and intentions, rather than about outcomes of those efforts and intentions.

“I think there is a trap there which is in the ESG space, a lot of what is getting measured is actually effort rather than outcomes,” Serafeim said. “What creates value at the end of the day is the outcomes that you’re achieving, not how much you’re spending. In fact what you would want to have is the highest ratio of outcomes to effort, right?”

There will be a tremendous business opportunity over time for differentiation in various markets, he said, pointing to Norwegian waste management company Norsk Gjenvinning which went through a difficult transformation to ultimately emerge as an industry leader with best-in-class practices that attracted top talent and high-reputation brands.

“Transformation can happen in many organisations, and the fuel of that is purpose, that actually you’re doing something that people feel very strongly about,” Serafeim said. These “animating forces” inside organisations are different to things that are “a simple process to imitate.”

Looking ahead at impact reporting, there are lessons in looking at accounting statements and reporting standards which were a contested idea 100 years ago, Serafeim said. Companies baulked at the idea of revealing their assets, sales and accounts receivable, but now it is impossible for investors to imagine being without those things.

Measuring impact is similarly in its early stages now, Serafeim said, with “something that will look like a minimum viable product” to appear soon, and then ongoing improvements that could take 100 years.