Asset owner call to drive policy

It is difficult to see how the world will cap emissions in line with the Paris agreement unless asset owners drive change, aligning their portfolios to net zero and demanding more from their managers. Carbon neutrality or a net zero carbon footprint, and tapping into the opportunities rather sinking in the constraints of that transition, is possible, said two of the world’s largest asset owners speaking at PRI in Person in Paris.

“I very much agree that with ownership comes responsibility. We want our portfolio to be net zero by 2050 and what we are doing now is working on measures to achieve this,” said Dr. Guenther Thallinger, member of the board of management at German insurance giant Allianz SE. Arguing that there was a business case for pushing net zero, he said the PRI’s Inevitable Policy Response (IPR) showed it was “quite clear” asset owners needed to think about integrating climate risk into their strategy and implementation, and work with regulators and other policy makers.

Bertrand Millot, head of stewardship investing at $246 billion pension fund CDPQ told delegates the Canadian fund is equally committed. It is allocating more to green investments and has set out goals to decarbonize its portfolio from which he said net zero is a natural extension. He cited investment opportunities across numerous sectors, highlighting greening real estate and renewables, particularly.

Regarding the argument that fiduciary duty limits asset owners ability to integrating ESG, he said he hoped this argument “had come to an end by looking at the facts.” Bad news about investors being “burnt” by climate events was now commonplace, he said. The European car industry is one increasingly apparent example, where electrifying the vehicle fleet will have wide ramifications that “speak for itself.”

Millot told delegates that companies are starting to take action but big differences in responses remain, particularly across the US. He said that the debate needed “to be brought forward” and consumers needed to indicate what they want to happen. Moreover, “governments should take action and asset owners’ role was to push this on.”
Reflecting on the different pace of change between Europe and the US amongst the investment community, companies and regulators, Millot suggested that consumers would drive change in the US that would breach the divide. The transition wouldn’t just be Europe-led, he said.

“The question of consumers is an important aspect. Millennials want the same thing either side of the Atlantic and companies need to respond. Breaching national boundaries needs to happen.”

Asset owners needed to do more to lead on policy, they both suggested. Agreeing that governments are “not going far enough” to pull policy levers, they urged that rather than sit back and wait for action, asset owners should lead.

“We need to be much more active participants around many issues,” said Millot who told delegates asset owners should stand behind policy makers and play a “meaningful role.”

Thallinger added that asset owners should be committed to the same policies as governments in a clearly aligned vision. This would require investors informing governments on the kinds of policies they wanted, by working together in widespread programmes. We need to be part of it, otherwise policy will only cover certain aspects and will not apply across portfolio management, he said. The investors also agreed that as universal owners they were uniquely positioned to shape policy across jurisdictions. “Governments are forced to work in their own jurisdictions. We can be the bridges to combine these jurisdictions,” he said.

Moreover asset owners have a symbiotic relationship with government because they both liked stability and governments need investment to finance the transition. It requires a close dialogue to ensure the right policy is enacted.

“We are all facing climate change, and we all need to act,” said Millot. “There is a strength in numbers.”