Sustainable Investment Report Q2 2019

We have long viewed public pressure as an important piece of solving the climate puzzle. Our Climate Progress Dashboard tracks the level of public concern about climate change by using Gallup’s annual survey on the attitudes of major countries to climate change.

We assume that if 90% of respondents are concerned about climate change, the rise in global temperatures will be limited to 2°C. If only 10% are concerned, we will see a 6°C rise. The last dashboard forecast a temperature rise of 3.3°C, flat from when the dashboard first launched in 2017. It will be interesting to see if this important indicator starts to shift. If it does, policy programmes like the much discussed Green New Deal in the US may start to change the investment landscape. We unpack this, what it is, and how investors should think about it.

Well over a decade ago we identified climate change as a major headwind that all investors would have to navigate over the long term. The complexity of the challenge and the multi dimensional scope means that the historic tools investors have relied on are of little use; but the benefits for those who understood the implications would be substantial. This quarterly update provides insight into how the story is unfolding so far. We discuss how industries ranging from fashion, to aviation, to waste, will be transformed, creating new winners and losers.

We believe that engagement and improved corporate reporting on ESG issues, including climate change, is another important piece of the puzzle.

However, we are aware that we are asking more of our investments than ever before, and run the risk of overwhelming companies with an endless list of asks. We take stock of the current state of engagement, and set out some important markers for the future. Meanwhile, in Thinking Fast and Slow on Corporate Governance, we attempt to strip governance back to the essentials and encourage boards to think how they can effectively focus on minority protection, business and strategic oversight and demonstrate how companies that do this generate alpha.

Finally, given the long term structural nature of climate change, it is important that investors don’t just consider the impacts on a company or sector level, although as we have demonstrated with tools like Carbon Value at Risk, these can be substantial.

In the second of our papers on Multi-Asset Investing and ESG integration we stress the importance of asset owners considering climate change impacts when it comes to their strategic asset location decisions, as well as taking a total portfolio approach to sustainability. We hope that this report goes some way to demonstrate how we are seeking to take a similar total firm approach.

Key topics covered:

• "Flygskam": The very real impact of climate change on Swedish airlines
• The five practical issues of incorporating ESG into multi-asset portfolios
• The material consequences of choosing sustainable fashion
• Trash talk: Why waste might not be wasted
• What is the Green New Deal and what does it mean for investors?
• Corporate governance: Thinking fast and slow
• The past, present and future of engaging for better transparency

Many of these pieces are summaries of longer pieces of work. Please do go to our sustainability website if you would like to find out more.