Pension funds around the globe should be putting their high-risk capital towards supporting venture funds that have a track record of seeing value in people, according to Vivienne Ming, Silicon Valley technologist, entrepreneur and theoretical neuroscientist.

Ming believes that AI can be used to solve poverty, mental health, inequality and even predict who will spread COVID-19. She says technology can make all of our lives better.

“Pension funds should support venture funds that have a track record in seeing value in people, that can truly discover alpha by finding the missing amazing people and giving them a shot,” she said in a Redefining Leadership series interview (video below).

Ming’s vision is to leverage machine learning to simplify and enhance human potential and she has already created technology that improves the lives of people with diabetes, dementia and trauma as well as face recognition technology that has helped refugees reunite with their families.

She urged investors to care about creating a world that is inclusive and has a space for everyone, and to take action by appointing people to leadership positions that truly represent the breadth of the community they are trying to impact.

“The biggest predictor of the wage gap in an organisation is the number of women in executive positions. When women are in executive positions, women in lower positions work harder because they can see their hard work will pay off and they can progress,” she said.

Currently Ming is developing an Inclusion Impact Index that tracks the progress of entrepreneurs in real time with a particular focus on women and queer entrepreneurs.

“As a woman if you want to raise money, start a footwear company or an ecommerce company as you will be more likely to get funded. It is an industry ghetto-isation with men from Stanford and Harvard deciding the funding based on what their wives are good at,” she said. “If you’re a gay man start a lifestyle company.”

She said in highly hierarchical industries, such as banking or entertainment, so much more effort goes into getting funded.

“Banking is a very hard space for women to go into as an entrepreneur. A small number of people make all the decisions in those industries,” she said.

Ming’s own journey is complex and she can speak from personal experience when it comes to gender bias, transitioning when she was an academic and losing her position at Stanford as a result.

“When I transitioned the head of the Institute said “you’ve lost your edge”. I’ve founded six companies since then, I’ve invented so much, so I’m not sure what edge he was talking about: that I’m not angry and mean all the time?”

Ming developed her first technology start-up in 2009 and was rejected in fundraising by many investors who said they liked her technology but wanted someone else to be the CEO.

“All they could see was long blond hair. It was shocking,” she said. “Being me has allowed me to be happy. And it has also allowed me to be meaningful and have a positive impact on other people’s lives.”

She has now launched six companies but has never pitched to a female venture capital partner.

“I have never seen someone in the room with voting power that is like me,” she says. “I don’t care what other people need to be for themselves. I care that we leave enough space for each other. The biggest impact we will have, and the way to find an amazing life for ourselves, is if we give it to someone else. The highest levels of impact are not what is written on the walls but what you do.”

Ming now consults to many Silicon Valley companies, and explores the motivations and needs of humans in order to use AI that can help build a better world.

Recently she was hired by a company that had 500,000 employees, to uncover the biggest untracked predictor of productivity.

Using social tracing to track every employee, she discovered the biggest driver of productivity was sacrifice.

“When people took actions for which they would not reap a direct benefit, like helping a friend in another team they weren’t associated with, that was the biggest driver of productivity,” she said. “Have you ever promoted someone because of their tendency to give other people great ideas?”

Similarly, Ming says that in hiring staff people need to get away from the idea that there are easy signals that can be relied upon, like the school attended or a past job.

“It turns out that doesn’t predict anything about the quality of your work once I know other things about you. We have analysed 122 million employees, and found the things that predict the best work are social skills, emotional intelligence, creativity and cognitive ability. They are measurable and predicable, and the best thing is they are changeable.”

The Investor Mining & Tailings Safety Initiative, chaired by the Church of England Pensions Board and the Swedish Council of Ethics of the AP Funds has won the PRI Stewardship Project of the Year Award.

The Investor Mining & Tailings Safety Initiative was established shortly after the Brumadinho disaster in Brazil which killed 270 people, and uses direct shareholder action at mining companies to ensure that make sure the systemic risk posed by waste in the mining sector was properly understood and addressed.

Supported by 114 investors active in extractive industries with over $14 trillion in assets under management, the initiative reveals the qualities of successful stewardship including the value of building coalitions, the need for more than one intervention if goals are ambitious, and that investors are in a unique position to convene other stakeholders to address systemic issues.

Here is the full submission to the 2020 PRI Awards which details the projects objectives, successes and learnings.

 

Give a brief overview of the initiative, its objectives, and why you decided to undertake it. 

The Church of England Pensions Board and the Council on Ethics of the Swedish National Pension Funds used direct shareholder action at mining companies to ensure that lessons were learned from the 2019 Brumadinho disaster in Brazil, which killed 270 people. The co-founders were driven by a desire to make sure that the systemic risk posed by waste in the mining sector was properly understood and addressed.

In January 2019, a mining tailings (waste) dam belonging to Vale collapsed and killed 270 people. The disaster followed a previous tailings dam collapse in November 2015, in the same region, at another Vale operation at the Samarco joint venture with BHP. On that occasion, 19 people were killed and extensive damage was caused to the environment.

Back in 2015 and 2016 Vale and BHP gave assurances to investors that the issues that led to the disaster had been addressed. It turned out they had not. It became clear that a much more systemic intervention was required by investors if the risk to life and the environment posed by tailings dams was to be addressed.

The Investor Mining & Tailings Safety Initiative was established shortly after the Brumadinho disaster. It is supported by 114 investors with over $14 trillion in assets under management. The initiative sought world leading expert input at a series of investor roundtables, and identified the following five issues:

  • There was a trend of increasing catastrophic dam failures combined with a failure to implement past recommendations.
  • There was a lack of a global industry standard on tailings management.
  • There was an unknown number of tailings dams in the world and no global record of where they were.
  • No Disclosure standard existed for company reporting on tailings dams.
  • Fundamentally, waste has been treated as an externality with the cheapest storage options in many instances.

Describe how your project is aligned to Active Ownership 2.0, including:

  1. The significance of the systemic, real world outcomes it seeks. 

Tailings dams are some of the largest constructions in the world intended to last in perpetuity. There is no global record of their locations or standards of operation and the significance of this initiative are stark: lives saved, environmental depredation avoided and prevention of company value destruction.

After previous disasters actions were left to companies. This time investors were intent on driving the systemic change needed and as such a number of interventions were made:

  • Establish a Global Tailings Standard. The International Council on Mining and Metals (ICMM), which represents the top 30 largest global mining companies in the world, worked with the PRI and the United Nations Environment Programme (UNEP) to establish an independent Global Tailings Review.
  • Identify World’s Tailings Dams.There was no public record of where dams were located, standards of operation or ownership. The initiative made an urgent disclosure request to 727 listed extractives companies seeking detailed disclosure on each individual facility.
  • Develop Global Public Database. The co-chairs established a global database at the UN-backed research company GRID-Arendal, to drive performance and best practice. The site incorporates satellite imagery and compares 1,900 facilities.
  • Establish a 24/7 global alert systemto facilitate tailings insurance provision and accelerate technology to enable the identification and removal of the most dangerous dams.

 

  1. The ambition, ingenuity or effort in the responsible investment tools/activities that were deployed. 

The initiative has demonstrated it is possible through concerted efforts, over a short timeframe, to place investors in a leadership role to shape a global response to a disaster that should not have happened, but could easily happen again.

The Pensions Board and the Council of Ethics believe that this kind of collaboration, intervening in a decisive and public way to reshape an industry, is consistent with Engagement 2.0. The following actions were critical to the success of the initiative:

  • The ability to respond immediately: The co-founders were able to form an urgent collaboration within days of the disaster. And to agree a common position and make a public intervention to shape the response following the initial disaster recovery phase.
  • Rapid expert knowledge gathering:the co-founders convened five urgent expert roundtables of investors in an open transparent manner with industry and leading academics at the table. This enabled them to work through the issues together, but with investors in the lead to identify potential solutions and interventions. These events saw between 60 and 120 in-person participants, and further online attendance.
  • Consistent involvement of affected communities:Contributions through conference calls, written statement and in-person testimonies challenged company reporting of circumstances around the affected areas as well as investor understanding of the issue. It kept the initiative very clearly focussed on the issue.
  • Coalition building:The initiative is supported by 114 institutions with over $14 trillion in AUM. The co-founder also involved key governments, including the UK, Brazil and Chile.
  • Willingness to Set the Agenda to Generate Momentum:Throughout the co-founders have sought to set the agenda at pace and in public (often reported in the media including WSJ, Bloomberg, FT, Reuters, New York Times). When they identified an issue, they made an intervention. This generated considerable momentum.
  1. The challenges associated with this initiative (e.g. free rider issues hindering first movers) how these were overcome, and what was learned. 

Ensuring prominence of community voice(s): This was the greatest challenge given the disaster was in Brazil and the inevitable language challenges. Due to the nature of the initiative many senior company representatives were present in person whilst community representatives were initially only present through conference calls or written statements. This was an imbalance that needed to be addressed and the co-founders did so by ensuring a community presence at key moments in the initiative, as well as supported travel and interpretation. The Pensions Board and the Council of Ethics also partnered with local organisations in Brazil, such as the Business and Human Rights Resource Centre Brazil Office, and the NGO Caritas Brazil, and worked through LAPFF who had greater expertise in this regard.

Differences in community perspectives and with companies: Significant differences between community and company accounts led to the Initiative announcing a delegation visit to Brazil. It was also clear there were different perspectives and the founders tried to ensure that rather than community participants representing their communities, that they related their experiences. The experiences were hugely powerful, challenging and each was also deeply personal.

Challenges related to credibility and partiality. It is important to avoid ‘capture’, the appearance of ‘capture’ and undue partiality. The Pensions Board and the Council of Ethics achieved this by inviting a broad range of expert and stakeholder attendees to roundtables, and at all times insisting on independence in the Global Tailings Standard and committing to open and freely available data generation.

Defining an Urgent Disclosure Ask: The ‘ask’ needed to be reasonable for small and large companies, avoid commercially sensitive data, and provide meaningful insights of material relevance for investors and other stakeholders. The Pensions Board and the Council of Ethics addressed this challenge by developing a set of questions in consultation with investors, ICMM, and four mining companies of different sizes.

Maintaining a distinctive investor lens: There is a wealth of engineering, organisational, and other complexity that intersects in this initiative, and one challenge has been not to become lost or absorbed in this complexity.

Outline the results, including evaluation of its success against the objectives; were there any adjustments to the forward agenda; were there any insights learned from this project that can be applied more broadly?

  1. Preventing Another Brumadinho by Establishing a Global Standard. The process began in June 2019 and involved convening an international expert panel of seven, and a multi-stakeholder advisory group of 15 people. It involved field visits, public consultation, and in-country consultations in Kazakhstan, China, Chile, Ghana, South Africa, and Australia. The Standard is due to be published in June 2020. The goal was to ensure an implemented Standard that would have prevented Brumadinho. The independent expert panel have confirmed that this would likely have been the case.
  2. Safety Improved by Tailings Disclosure.In under a year, The Pensions Board and the Council of Ethics have received standardised and full disclosure from 64.9% of the mining industry (by market capitalisation), and responses from 86% of the mining industry by market capitalisation. Through government and company sources the founders know repairs have been made to dams that were long overdue and safety budgets increased.
  3. Transparency driving best practice: The Pensions Board and the Council of Ethics supported the development of the Global Portal in an open-source format, mapped onto satellite imagery, and to allow comparative analysis. Data on 1,938 tailings facilities is reported, located at 764 mine sites, across 98 mining companies. This was the first time such data was freely available and allowed risk profiling of companies.

Insights:

  • Broad requests for detailed information from investors can be successful in a short timeframe, particularly when momentum is built through collaboration.
  • Value in building coalitions with like-minded organisations in and outside the financial ecosystem. These collaborations can be useful both as ‘top down’ (through co-convening a standard setting process), and ‘bottom up’ interventions (through collaboration that enhances the availability and usability of data for academic analysis).
  • If a project has ambitious goals, one intervention will not be sufficient, particularly where the challenges straddle different domains: regulation, governance, corporate practice, employee behaviour, data availability, etc.
  • Investors are in a unique position to convene other stakeholders to address systemic issues.

 

 

 

The momentum around diversity and inclusion in the investment industry continues as consulting firms put pressure on asset managers to report on diversity and institutional investors in Canada and the US commit to solving inequities related to diversity.

US consulting firm Verus has teamed up with eVestment, which is an institutional investment data and analytics company, to enhance its questionnaire to include diversity statistics at the firm and team level, as well as details on firm policies and initiatives to increase the level of gender and ethnic diversity within senior leadership and investment teams.

Verus has also sent a call to action to fellow consulting firms to invite them to join the initiative. It is thought that in teaming up with other consultants, the asset management industry may be more responsive to the data request.

President of Verus, Shelly Heier, said the firm believes that diversity of perspective and thought can contribute to better investment results.

“Many of our clients also share our passion to improve diversity in the investment industry, but it has been frustrating to not have any way to measure diversity and efforts for improvement. It’s long overdue to collect this information and we’re excited to have a partner in eVestment that is able to collect the information needed.”

Other consulting firms, such as Albourne, have also been at the forefront of promoting diversity and inclusion in asset management. In August this year Albourne teamed up with AIMA to develop a new diversity and inclusion questionnaire for all alternatives managers.

Asset owners are increasingly assessing managers on diversity and inclusion measures. Jonathan Grabel, chief investment officer of Los Angeles County Employees Retirement Association said diversity and inclusion is a fundamental part of the fund’s investment philosophy.

“LACERA actively assesses current and prospective investment partners on how they effectively access, develop, and retain diverse talent and cultivate inclusive workplaces to achieve the best outcomes.”

CalPERS, the largest pension fund in the US, has a commitment to diversity that is reflected in investment beliefs and in its strategic plan. Engagement with companies and advocacy with regulators is among the implementation techniques.

“We are very clear on our focus in this area,” says Henry Jones, the fund’s president.

In August 2016 the CalPERS investment committee adopted the fund’s sustainable investment strategic plan which among other things identified corporate board diversity and inclusion as a strategic initiative.

Over the past few years CalPERS has engaged 733 companies on the lack of diversity on its boards and since 2017, 53 per cent of those companies have added a diverse director to their boards.

In an interview that is part of a podcast series Sustainability in a time of crisis Jones also outlines the fund’s plan to look at racism in its portfolio.

“This is both a moral imperative and economic necessity and corporate accountability is vital. We welcome the attention brought to this issue in business, and tracking racism,” he said, adding that CalPERS is undertaking a new research project to identify where to focus attention to make progress.

“Mapping racism as a systemic risk means we should track this across the portfolio, but right now we don’t have the tools or the data. It is not unlike where we were on climate as a systemic risk, we didn’t have the information and had to build a data model and action plan with our partners. We need to do that with addressing racism and have commissioned research on this.”

 

Meanwhile Canadian institutional investors managing more than $2.3 trillion in assets have signed the new Canadian Investor Statement on Diversity & Inclusion.

The statement looks at the role that institutional investors can play in contributing to inequities in Canada by taking intentional steps to promote diversity and inclusion across portfolios and within their organisations.

Signatories to the statement, which include some of the largest institutional investors in the country, acknowledge the existence of systemic racism and its impacts on black and indigenous communities and people of colour, while further acknowledging the existence of inequities and discrimination based on other factors including, but not limited to, gender, sexual orientation, age, disability, religion, culture and socio-economic status.

Kim Thomassin, executive vice-president and head of investments in Québec and stewardship investing at CDPQ said long-term investors have an important role to play in engaging portfolio companies towards best practices in terms of diversity.

“It has been shown that diversity is a lever for improving performance, which is why CDPQ has positioned diversity and inclusion as a pillar of its sustainable investment strategy. Moreover, we understand how inclusion is closely related to equal opportunity and social justice. We encourage our peers to make this subject a priority,” she said.

Peter Lindley, president and CEO of OPTrust said investors can influence and create transformation by defining quantifiable measures.

“Dismantling systemic racism, discrimination and barriers to senior roles for Black, Indigenous and people of colour demands action. Representation matters and institutional investors should reflect the diversity of the markets in which we invest. OPTrust is committed to putting in the work and holding ourselves accountable to realise greater equity,” he said.

 

 

 

The COVID-19 pandemic is the second global economic crisis that Ash Williams has endured as the executive director and chief investment officer of the $200 billion Florida State Board of Administration. Williams re-joined SBA in his current role in October 2008, in what might be called challenging timing. But there is something unique about this crisis that is keeping Williams up at night and which hovers over his view of the portfolio’s direction.

“There is a disconnect between financial markets and the real economy which beggars the question: Is there embedded misery in the economy that has not yet played out in financial markets?” he asks.

Williams says that the GFC was a completely different experience from the pandemic because it was an economic crisis that evolved from excesses in certain sectors and systematic misalignment between buyers and sellers. In this current crisis the financial markets bounced back, but in the underlying real economy the “recovery is not there”.

In terms of managing the SBA portfolio through the pandemic, Williams says the most important step was to make sure at the onset of the pandemic the fund had ample liquidity.

“Our fundamental obligation is to meet benefits in a timely way,” he says.

The amount of capital required to meet those obligations was calculated and set aside, as well as the money needed for any potential capital calls, and rebalancing. Only then was liquidity considered for opportunistic investments.

“The first thing we did was to position ourselves for liquidity. The difference between being a predator and prey is liquidity,” he says in a Fiduciary Investors Series podcast interview.

In terms of making the most of the opportunities, Williams saw the disruption in markets as an opportunity to invest more in active management.

“When you look at the way we deployed the rebalanced assets and bought back into equities markets one of the judgements we took was to put a higher exposure into active management,” he said. “There were whole sectors like hospitality and transportation which have been depressed and devastated and there’s no way to know when that would end. So why have a routine exposure to those sectors, why not have an active manager make some judgments on that?”

SBA also made some allocations to distressed credit opportunities and some private equity speciality funds.

“In real estate we did a kind of joint venture between real estate and strategic investments. Early on in the pandemic we saw isolated seizures in security markets, and one of the first things that came under stress was publicly traded REITs, they had a lot of leverage and had problems meeting their obligations. This was an early source of stress and created a period of disconnect between prices of trading REITs and what the underlying assets were worth. With an existing REIT partner we helped form a new vehicle to take advantage of the short term dislocations in the REIT space,” Williams says.

Since then he is keeping a close eye on the significant real estate portfolio and sold a few assets.

“Retail and office have question marks over them and we’ll see how that plays out,” he says. “One of the biggest unknowables is what happens to office real estate. Look at NYC as an example there’s been closure of office buildings and an exodus of people. If you’re in a city it’s usually for the vibrant culturally elements, but when everything is closed all you’re left with is living in a small space at a high price and it’s not as fulfilling. It’s also led to hot markets in second home and resort areas in the US. How many people come back to a conventional daily presence in an office, it’s too early to say. We do believe the creative processes of humankind are stimulated by people being together, more than a video conference can support. Probably offices will come back but it remains to be seen as to how and what that looks like.”

Elsewhere some parts of the portfolio that are actively managed have benefited, such as the overweight to tech and venture in private equity, and certain parts of the RE book have benefited from healthcare exposures.

For the most part the portfolio hasn’t changed a great deal on the liquid market side. In fixed income there has been a slight move towards enhanced core or core plus.

“We are trying to gain a bit more return by way of credit. Extending duration doesn’t seem terribly appealing in this environment,” he says.

 
Enterprise risk management

SBA has around 200 people in the team and they started operating remotely in early March. The fund has a head start on testing systems endurance and every year gets to test remote working due to hurricane season. It has good business continuity plans in place and this played out in a seamless move to working from home.

In terms of risk management Williams says the most important development in recent years has been a move from a focus on portfolio risk to an enterprise risk basis.

Williams says risk tolerance, the quantitative measure of investment risks, budgeting for them and having an understanding of aggregate risk is of vital importance. But what that doesn’t reflect is risks that have nothing to do with the portfolio but everything to do with the enterprise, and they are equally important in protecting outcomes and achieving objectives.

“A cyber breach could cause reputational damage well beyond the investment loss,” he says by way of example. “The biggest risk that we face and all public pension funds face, is not portfolio risk; it’s political risk. If you look at the history of pension fund failures around the world more often than not the cause is not a shortfall in investment return, it has been a failure of funding.”

SBA has a nine member investment advisory council where members are required to have institutional fiduciary experience. This complements the board of three trustees which are all state-wide elected officials and who don’t necessarily have institutional investment experience.

SBA already manages a significant amount of assets inhouse, which has been a big contributor to its low costs, and Williams says there will be more assets managed in house.

“We have superior results and very low costs and a big part of that is the ability to manage money inhouse. We have an understanding what is realistic for us to do inhouse, we would never compete with Canadian funds who are equipped to do direct private equity by example. But we can do passive, factor investing and maybe a bit of co-investment,” he says. “A penny saved is just as good as a penny earned. You need human capital and talent to do it prudently, we have that.”

 

About the Fiduciary Investors Series

Through conversations with investors and academics, the Fiduciary Investors Podcast Series, is a forward-looking examination of the changing dynamics in the global economy, what a sustainable recovery looks like and how investors are positioning their portfolios.

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 challenged long-term investors face in an environment of disruption, and asks investors to think differently about how they make decisions and allocate capital.

About Andrew Parry

Parry is head of sustainable investment at Newton Investment Management. He was previously head of sustainable investing at Hermes Investment Management, developing the firm’s impact investing capabilities, and aligning its funds to the UN Sustainable Development Goals. He previously held roles as head of equities and impact investing at Hermes, and before this as CEO of Hermes Sourcecap Limited. He has over 30 years of equity investment expertise, having also held roles as CIO of global equities at Northern Trust Global Investments, head of equities at Julius Baer Investment Management, CIO of Lazard Brothers Asset Managers, and head of UK equities at Barings.

About Amanda White
Amanda White is responsible for the content across all Conexus Financial’s institutional media and events. In addition to being the editor of Top1000funds.com, she is responsible for directing the global bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts.  She holds a Bachelor of Economics and a Masters of Art in Journalism and has been an investment journalist for more than 25 years. She is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

What is the Fiduciary Investors series?
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.

The chair of the newly created EU Platform on Sustainable Finance, PRI’s chief responsible investment officer Nathan Fabian, explains how the platform will support financial markets to steward and allocate their capital to activities that contribute substantially to Europe’s sustainability goals.

In a first-of-its-kind, today the European Commission has launched its new Platform on Sustainable Finance. The platform responds to the urgency of the sustainability transition by establishing a permanent public and private sector expert panel to develop sustainable finance policies and tools. Its mandate includes further development of the technical screening criteria for the EU’s sustainable taxonomy, as well as a review of potential social and significant harm criteria. The platform has two further objectives – to monitor capital flows to sustainable finance and to undertake policy development on sustainable finance. For the first time, we will know how much of our capital is sustainable – and how much is not.

The platform’s 50+ experts include representatives from investment, banking, scientific, industry, environmental groups and civil society. Importantly, the group includes members with direct expertise from many of the economic sectors that must contribute to a sustainable economy. The private sector members are joined by representatives of the European Environment Agency, the European Supervisory Authorities (EBA, EIOPA, ESMA), the European Investment Bank, the European Investment Fund and the European Union Agency for Fundamental Rights.

Reflecting the global importance of Europe’s efforts, the platform will include observers from the Network of Central Banks and Supervisors for Greening the Financial System, the Organisation for Economic Co-operation and Development, the European Financial Reporting Advisory Group, the United Nations Environment Programme Finance Initiative, the European Bank for Reconstruction and Development and the European Stability Mechanism.

The initial two-year mandate of the group includes:

(i) development of technical screening criteria for the EU taxonomy,

(ii) review of the taxonomy to potentially include social and significant harm criteria;

(iii) observation of capital flows towards sustainable finance, and

(iv) policy development on sustainable finance.

Critical issues loom for the platform on how taxonomy criteria can inform transitional finance for economies, companies, and financial portfolios to align with – and contribute to – sustainability goals. Of equal importance is monitoring the development of reporting on taxonomy alignment, to ensure that investors with disclosure obligations under the Taxonomy Regulation and companies with obligations under the Non-Financial Reporting Directive can fulfil them in a meaningful way.

Unless we base our understanding of “how good is good enough” on the actual contribution to sustainability goals, rather than solely on good intentions or incremental plans, economic transition will stall and financial markets will struggle to play their full potential role in realising sustainability goals.

The platform’s launch is one way to deliver on European Green Deal. The green deal brings sustainability objectives to the core of Europe’s shared strategy for prosperity. The centrepiece is a goal to reduce greenhouse gas emissions by at least 55 per cent below 1990 levels, in 2030. This deep reduction target establishes a pathway to net zero emissions by 2050 that is consistent with ambitions to limit warming to around 1.5 degrees – the aim of the Paris Agreement.

To achieve the 2030 target in Europe, EUR 350 billion per year of energy-related investment alone will be required. This is before finance for Europe’s other environmental priorities is added, which will include investments in climate adaptation, pollution prevention and control, water system health, bio-diverse eco-systems, and a circular economy.

Financial markets work best when they are free to assess risk and pursue returns. But investment in economic activity which pollutes, wastes and is unresponsive to environmental constraints is shifting costs and building financial risk. Investors and lenders have known this for some time. Now that environmental and social goals are becoming explicit, urgent, and supported in law, financial activity that is careless about sustainability performance becomes one of society’s problems, not part of the solution to greater or shared prosperity.

Recognising the importance of climate goals, 45 institutional investors and over 1000 companies have made their own commitments to net zero emissions by 2050 and reported them as part of the UNFCCC race to zero campaign. Contributing to this is the PRI and UNEPFI convened Net Zero Asset Owner Alliance, which includes 29 investors managing nearly $5 trillion, who have made commitments to align their portfolios with a pathway to net zero by 2050. These investors will transition their portfolios to a sustainable footing and the Taxonomy will inform their decisions.

Without a comprehensive and widely used sustainable taxonomy, fragmentation and differences of view on the environmental performance of our economies threatens to undermine trust and efficiency in financial markets at a time when both matter greatly. Unless we base our understanding of “how good is good enough” on the actual contribution to sustainability goals, rather than solely on good intentions or incremental steps, financial markets will struggle to play their full potential role in realising sustainability goals.

The Platform on Sustainable Finance will support financial markets to steward and allocate their capital to activities that contribute substantially to Europe’s sustainability goals. The taxonomy is the foundation on which these decisions can be based, ensuring that for the first time, we will know how much of our capital is sustainable and how much is not.

The PRI has worked with its responsible investor signatories to ensure that market insights influence the design of Europe’s future financial system. The PRI has been a conduit and facilitator of both technical input and investor experiences into the deliberations of policy makers and on the design of the EU Taxonomy. The PRI is delighted to continue contributing to Europe’s sustainable finance activities by supporting the appointment of Nathan Fabian in the role of Chair of the Platform on Sustainable Finance.