Heard at PRI in Person 2024: System-level Developments in Advancing Responsible Investment

• October 15, 2024
• admin

Although the future of capital markets will look vastly different from the past, many systems remain anchored in backward-looking frameworks. While ESG and sustainability continue to evolve, we understand which factors are material to investment decisions through the ISSB standards and regional taxonomies. The focus must now shift to addressing organizational barriers—societal constructs that hinder progress. How do we create the flexibility needed to overcome these obstacles and align capital with socially inclusive, net-zero goals? 

First, by leaning toward curiosity, not fear. There’s political theater at play, especially around anti-trust accusations and climate-cartel fears, but there’s little legal basis according to Faegre Drinker’s Tiffany R. Reeves. Most of it is noise that critics are using to stoke a different agenda. Fear-based decisions, however, can stifle progress. The net-zero transition is a massive disruption unlike anything we’ve ever seen. That does create risks, but also tremendous opportunities.

Second, by tackling legacy systems. PRI Chair Conor Kehoe provides the example of tracking an issuer’s stock price for 18 months after a change in capex allocation, essentially penalizing investments in the transition. It’s not just about diversifying asset classes and geographies, says CalSTRS’ Kirsty Jenkinson. It’s also about making lots of small bets so capital can find its winners because we can’t tell yet who the winners are going to be. To help enable these bets, regulatory bodies must create safe harbours so companies feel comfortable disclosing scenario analysis. Finally, positive lobbying (for climate and other sustainability-related outcomes) is still rare. Leaders who may genuinely want to advance climate solutions are expressing their views quietly says Climate and Nature Solutions CEO Catherine McKenna. This reticence makes it difficult for government to action their feedback compared to louder, more public views. We need an enabling policy environment to level the playing field.

Third, by framing the political rhetoric around ESG in the appropriate investment context. Pension funds have overwhelmingly long term time horizons; tune out the noise and stick to strategy. For example, Wellington Management’s Wendy Comwell believes the US Inflation Reduction Act, with its focus on job creation in waning industrial areas and tax credits that work for nuclear as much as they do for wind, is a difficult bill to repeal irrespective of election outcome.

Tune in tomorrow for more of what we heard in the Call to Action.

The Global Climate Finance Accelerator convenes partnerships across business, finance, and government on strategies, policies, procedures, and tools to finance the deployment of technically viable climate solutions.