Investors get ‘impatient’ over rate of ESG change

Investors are becoming impatient for companies to enact environmental, social and governance (ESG) policies as the climate change issue becomes more prescient.

The Paris Agreement aimed to limit global warming to below 2.5 Celsius compared to pre-industrial levels. Countries were expected to submit their plans for climate action which would show what steps they were taking to reduce greenhouse gas emissions.

In Australia, in particular, climate issues were prevalent in the spread of bushfires in 2020 as well as flooding and droughts.

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Asked how investors and companies had changed perceptions of ESG over the years, Fidelity’s global head of stewardship and sustainable investing, Jenn-Hui Tan, said investors had realised they had less time to wait.

“ESG will always be about the outcome, what has changed is investors have less patience to wait for that outcome. The climate emergency has been recognised and we don’t have five years to wait anymore so the timeframe that investors expect change has been shortened,” he said.

Danielle Welsh-Rose, ESG investment director at Aberdeen Standard Investments, said: “It used to be that investors were interested in carbon footprint but over the last year, investors have become more interested in climate transition and are asking firms for evidence of what firms are doing to support that.

“There is a focus on engagement and getting firms to demonstrate they have a plan. There is a move to outcome focused rather than process focused.”

Stephane Andre, principal at Alphinity Investment Management, said it was important for investors to rigorously firms on their ESG principles when they were considering investment. This included asking for both transparent data from the firms themselves and conducting independent third-party research.

“If they have poor ESG practices then we would not invest and even if they have good ESG then we would test that to see if they were sticking to their word. This could be by asking them to send us transparent data, and independent surveys, we try to be fact-based and not react emotionally,” he said.

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