The growing role of investor coalitions – in conversation with Fiona Reynolds

Dominique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Fiona Reynolds: And they blew up a forty six thousand year old sacred indigenous site in Western Australia last year. Completely gone, cannot be replaced. And this had a devastating impact.

Dominique Barker: I have the great pleasure to introduce to you Fiona Reynolds. Miss Reynolds is the CEO of Principles for Responsible Investing, or PRI. She’s been there for almost nine years. So welcome, Fiona. She has spent over twenty five years in the financial and pension sector. She convinced the UN Net Zero Asset Owners Alliance, which I expect will gain prominence coming into Cop twenty six this November Twenty twenty one. And she is also on the board of the UN Global Compact. The principles of responsible investing, or the PRI, has over four thousand signatories and represents over one hundred trillion of assets under management. So PRI recently came out with their strategic plan this past April. You can just point out briefly some of those strategic priorities that you’ve said for the PRI, which I expect would set the direction for investors and the investor agenda.

Fiona Reynolds: Thanks for having me. So we launched our new three strategy in April, the theme of the strategy of building a bridge between financial risk opportunities and real world outcomes. Just quickly on that theme, it really recognises that in the early days of responsible investment, most people thought about ESG in terms of what were the ESG risks to my portfolio. But now more and more investors are also starting to think about what impact does my portfolio have on the real world and how do I measure that. So there’s no doubt that we’ve come a long way since 2006. And so investors and there’s been real growth in responsible investing, but also in the maturity of the way people go about it. But I think there’s still a lot to do. So a bit of a focus for us in the next three years is climate change will remain a big issue for us, but it’s moving more into how do we align with the one point five degree world. We’ve got a big focus on human rights. Because really we don’t think that investors are systematically incorporating human rights. How do you use the sustainable development goals as a lens to be able to look at and measure your impact in the real world? How do we make sure that financial policy is more aligned with sustainability? How do we elevate social issues as well? The “S” seems to still get left behind a lot. We’re focussed on how do we get really good meaningful ESG data as well, and how do we continue to improve the accountability of signatories to the principles as well so that we’re within all in situation of having brainwashing? There’s a lot more to it. But In a nutshell, Some of the things we’re doing, we’re really wanting to make sure that we’re continuing to develop responsible investors who can work within sustainable markets and that we’re contributing to a prosperous world for all.

Dominique Barker: Right. Thank you for that. And I don’t think the audience could see. But when Fiona spoke about adding social issues, Kikay nodded her head. I know that’s an area close to her heart. So, Fiona, if we could just talk about that one point five degrees, I really do want to get to the human rights, because that is indeed an area that we don’t speak much about. So we’ll get to that. But if we could just talk about that one point five degree alignment to the Paris agreement, what are you expecting at the G20 and coming in to cop twenty six? And what does it mean for investors and for corporates?

Fiona Reynolds: Sure, So maybe the G7 and the G20 summits as well as the twenty six event for November. I think that really all pivotal moments for governments to come together to plan to align mainstream financial and real economy policy with sustainability goals because currently they aren’t really aligned. And this is part of our message to all of these groups. The meetings really need to be focussing on action to link all the covid recovery plans and financing to sustainability goals, including climate. And this is what we’re focussed on. Again, at the PRI in part of our discussions, I think that multilateral organisations and intergovernmental dialogue platforms such as the G7 and the G20 really represent a missing piece of the jigsaw in sustainable finance. And while policies promoting sustainable finance and investments have been developing at an unprecedented rate, they’re not very even and they still sort of open to the side. So at a multilateral level, sustainable finance is either been overlooked or they find their environmental development departments and not my finance departments. And that’s what we need to see. So it’s been really great at the G7 so far to see that there’s been support for mandatory TCFD, but also for tax reform, which is something that the PRI’s been talking about for years, that we need to do something else about taxes. We want to solve inequality problems. But coming to cop twenty six, we know that it’s now lost. Your opportunity to get the world on track for one point five degrees of warming, that we’re well off track and so what we’re focussed on is how do we see more net zero commitments from governments, from the private sector, from business, from investors with more ambitious timelines of setting a 2050 targets one thing signing a statement is one thing, but we need to set shorter term goals. Twenty twenty five, twenty thirty. And we need to see from all of these groups the action plans that are going to help us get there. Just in terms of governments, We also want to see that governments are bringing in the right policies and industry policy that will drive change. So we’ve been talking about the need for some sort of carbon pricing, an end to fossil fuel subsidies, that phasing out the internal combustion engine from all countries in the G7 and G20, changes in energy policy, agricultural practises, land policy, ending deforestation, for example, because without these changes, investors in business actually can’t get to net zero. So we need the discussions of all of these groups to focus on how we all play our part. So we’re wanting to help investors align with the one point five degree world. You mentioned the Net Zero Asset Owners Alliance that we’ve put in place for asset owners. Asset owners coming together because this hasn’t been done before. It’s hard. How do you get to one point five degrees? What do you do? What policy do you need in place? And then there’s an investment manager, net zero investment management group as well, coming together, share resources, share brainpower to be able to do this. And I think the private sector is really coming along way.

Dominique Barker: Okay, so a couple things that I got out of that. And I think I’ve seen this on your blog about how 2030 is the new 2050 and how we need to be setting shorter term goals. And this is the decade. This is, frankly, the year to set some objectives and to have some tangible results. You touched on the Net Zero Asset Owners Alliance, and I wanted to ask you about the power of coalitions. It is a trend that we have seen in the past few years and is becoming increasingly important. And maybe you can speak about what that would mean, for example, for corporates, how they should be thinking about those alliances and coalitions and how seriously they should be taking them. And perhaps you can draw on some of the recent news we saw from the Exxon Shell news from the government and Chevron as well. Maybe just speak about the importance of those coalitions and what we’re seeing and the importance for corporates to understand that power.

Fiona Reynolds: The agenda is so big that no one investor is able to move things along themselves. And also, it’s really quite confusing for corporates if you’ve got all these different investors coming to you all with different asks. And organisation A wants something and organisation B wants exactly the opposite. So to be successful as an investor industry, we need to come together and we need to be all moving in the same direction. If I use is a fantastic example of this collaboration, biggest ever corporate to an investor dialogue that’s ever happened on any issue is climate action One hundred plus. So it has five hundred investors, 50 trillion in assets under management. It’s focussed on the largest hundred emitting companies in the world. But all of these investors have got the same ask for companies. So to set a net zero target, and tell us how you’re going to get their, report in line with the TSFD and also to let us understand the governance, what’s happening at the board level. What discussions are you having about this? It’s been hugely influential and it’s having a lot of success where we’re seeing big net zero commitments from large oil and gas players. It’s come up a lot through climate action One hundred plus. And you mentioned some recent things that have happened where investors are not saying that this engagement is working. They’re stepping up and they’re using their voting rights. So just in the last couple of weeks, we’ve seen Exxon, Chevron, that there’s been change. So at Exxon, investors put up their own directors. Exxon now has three new board members. Thanks to investor action, Chevron has been forced to reduce emissions through the voting power of investors and then of the other side of the world. In Europe, we’ve seen that Shell was taken to court and the court has demanded that they decrease their emissions as well. So really a lot of action. So I think that what the corporates need to do is really understand this trend that is happening. I think it’s just going to go forward. It’s not going to go backwards and engage with the coalitions.

Dominique Barker: That’s fantastic advice. Thank you for that and that engagement and Communication is really important between companies and the investor groups, so thank you for that. Fiona, Can we talk about impact? When I was at CIBC asset management, we’re signatories to the PRI. And for those of you who don’t know, there’s a reporting element to it. And some of it is voluntary to disclose your mandatory to answer the questions. And this past year, there was an element of impact. And I don’t think the results are out yet. But maybe you can give a little bit of perspective on some of the early responses or what you expect to see, because I certainly am seeing on the private equity side in particular, more and more to do with impact. And it’s very important to their stakeholders and to their investors, which is a really interesting trend. Can you just speak about some of the global trends you’re seeing?

Fiona Reynolds: Sure. So this comes back to when I was talking about in terms of our new theme, building a bridge between risk and real world outcomes and that more of our investors are wanting to understand the impact, the outcome of their investments. So, as you said, we have a reporting framework. Every one of our signatories must report on an annual basis. Now, until this year, we’ve really asked you to report on indicators that are around process and policies. So what policies do you have in place and how do you go about them? And that’s really been it. Now we’ve added this new module, a plus module, which is all about the outcomes. How are you measuring them? What are you doing? And most of it is voluntary. We’re hoping that to use all of the information so that we can showcase to investors what people are doing, whether that is “I committed to one point five degrees. And this is how I’m going about it. I’ve upgraded my stewardship to focus on outcomes and this has been what has happened”. So as you said, the reporting just recently closed off. It has been a pilot year. And I would say it hasn’t been without some challenges as well. But we had twelve hundred of our signatories who reported on outcomes, so many more than I would have expected have taken the opportunity. So I do think you’re right, Dominique, that many more people are looking to be able to show what they’re doing. Investment managers are being asked by their arrested owners. Asset owners are being asked why their beneficiaries. Show me what you’re doing. So we’re also working about how can you build the metrics, because it’s easy to say show me the outcomes, but how do you actually measure these things? So that’s something else that we’re working on with the PRI with investors.

Dominique Barker: And I’d encourage Make My Money Matter. Richard Curtis’s videos. Take a look at that. There’s an impact element to that. I do have a question that’s related to impact. What will be the main fields or sectors for impact investment in future years in Europe? Do you have any predictions on sectors that are most opportune for impact?

Fiona Reynolds: Well, there’s a lot more focus in Europe on the whole issue of biodiversity, land use, water, etc.. So starting to think more about climate, that about emissions reduction, that’s obviously important, but starting to think about how we can more effectively do things in biodiversity and how can we invest in that way. And I think there’s also more investment started to happen to think about what are the technologies that we need for the future to be, particularly in some developing countries, to be able to actually get to net zero. We’re also seeing interest, though, in across Europe, in looking at impact investing from the perspective of diversity. So how can you support diverse corporations that are starting out and projects? So there’s some of the trends that we’re seeing.

Dominique Barker: Thank you very much. You spoke about your two pillars of importance. So the climate change or one point five degrees to be aligned with the Paris agreement and then human rights, because I think that’s very daunting for a corporate to be thinking about what that means and what is important to report. I think it’s also probably daunting for asset managers in terms of how they assess human rights management. Could you just speak on this complex topic.

Fiona Reynolds: Yea, So you know I think that we’ve got the ABS and the G but the S doesn’t get very much attention. As I’ve said, we really need to be focussing more on it. Now, at the PRI as with many investors, we’ve done lots of work on social issues. So we’ve looked at labour rights in the extractive sector, we’ve looked at child labour in the cobalt industry, all of these kinds of issues. And they were very important, but they were an issue in a sector, rather than thinking about human rights in a really systemic way in the way that we starting to look at climate change now, we’re looking at across how do we integrate climate risk and everything that we’re doing across our whole portfolio. So we’ve built a five year human rights project. So we know that it’s difficult, but some investors are doing this really well, but a lot aren’t. It’s new to them. So this is about building the tools, the education for investors to incorporate them. We’re not looking to start from scratch. There are plenty of overarching human right frameworks that are out there. So we want to use the UN guiding principles on business and human rights and how do corporations use them? So how do investors actually incorporate them? And then we also incorporate it into our own reporting framework. I think this is really important because what happens with the ESG issues and maybe it doesn’t always help that it’s called the ABS and the G, their just too siloed and people don’t think necessarily about an issue in a holistic way. So if we think about climate change, for example, it’s not just about, again, emissions reduction. There is a whole social aspect, a whole human rights aspect, there’s job aspects. There’s many things to be considered and we just need to look at issues in a much more sophisticated and holistic way.

Dominique Barker: So last week I presented at the Institute for Corporate Directors and there was a question about indigenous issues, for example. And this is topical in Canada. Fiona, I think you know, that there’s been some controversy and it’s been a bit newsworthy in Canada. I did want to cover it. I know you’re Australian. Could you just briefly tell our audience about what happened with Rio Tinto this past year? I think it’s relevant to the discussion on human rights as well.

Fiona Reynolds: Rio Tinto, as they were going about their activities, decided they’re blowing up lots of areas. And part of that was in the Juukan Gorge and they blew up a forty six thousand year old sacred indigenous site in Western Australia last year. Completely gone, cannot be replaced. And this had a devastating impact on the indigenous community. This was an extremely important sacred site for them. They followed, therefor a huge outcry, not just from the indigenous community, but from civil society in Australia, from investors in Australia and around the world, from other businesses. And I think this comes back to the power of the investor. There was intense pressure from investors about this issue. How could this happen? But more importantly, how will it not happen again? So Rio Tinto ended up having to clear out its top management, and most recently, it included the announcement of its chair stepping down. And I think that there’s a much greater focus these days from investors about indigenous culture, about the rights of the traditional owners of the land where mining companies and others, others are working and wanting to understand what that relationship is, asking questions about how do you engage with the community? What are the land rights issues? How is this ongoing dialogue happening? And I think that’s a real positive, because, as you know, in Canada, we in Australia, that we don’t necessarily have a proud history from our countries on engaging in these ways.

Dominique Barker: Thank you for that. Could you touch on using the UN Sustainable Development Goals as a lens to measure impact?

Fiona Reynolds: We were thinking about this whole issue of impact and outcomes and how are we going to start measuring it? And then we thought, well, there really is a perfect programme, which is the Sustainable Development Goals. I mean, I think of the Sustainable Development Goals as the world business plan. If the world could actually adopt all of the sustainable development goals over up to 2030, we would solve a lot of the world’s problems. So then within the framework that we’ve built, you’re using the STGs as a way of measuring your outcomes so you can map yourself against the sustainable development goals, the 17 goals. But underneath the goals, there’s also over one hundred and sixty indicators, no use creating new things, use the things that are there, that have had a lot of work and thought put into them, and more importantly, that nearly every world government has signed on to. I will say that the Sustainable Development Goals weren’t actually designed obviously for investors, but I do think they can still be useful to investors to think about the things that they need to be considering and measuring them.

Dominique Barker: One of the differences between North America and Europe with regards to sustainability and sustainable investing has been regulated Lead lands in Europe, for example, with the SFDR, but very regulated versus North America, which tends to be industry driven. And I think there’s pros and cons to both. Can you just discuss the pros and cons, perhaps? Thank you.

Fiona Reynolds: I think there’s pros and cons as well, and I’m not your opinion. Even though I live in the UK, I very much believe in investor action because I think that governments of all persuasions can come and go and regulations can change. But if that investors are committed to what they doing, they can act. Unless someone puts some barrier in their way in regulation, they can act and they can act together and move together. Regulation, I think can also sometimes end up being. The lowest common denominator, so this is this is what you must do, and a lot of people can just stop there instead of increasing their ambition. But having said that, where you’ve got a large tail of investors who aren’t doing things, it can help bring those people to the table. It can help signal from governments the importance of sustainability issues and that this is important to the government policy and so we’re integrating them. There’s definitely pros and cons.

Dominique Barker: There’s an unfortunate political trend toward isolationism around the world. How do you see this impacting how we will achieve net zero STG advancement, etc.? And I think related to, for example, the just transition and I know the PRI has some fairly important thoughts on that.

Fiona Reynolds: I think it’s essential to climate action, particularly in countries like Canada. Like I said, I’m from Australia where you’ve got your big fossil fuel producers and a lot of people work in the fossil fuel industry. Now, those workers cannot be the people who were left to pay the cost of climate change. It is not their fault. They have to be taken along on the path and there needs to be solutions found. And it is not beyond the capability of governments, investors and business and civil society to come together to solve these problems. Otherwise, you get rich politics whereby action can be stopped. This has happened in Australia. Governments really only got like a one seat majority. A lot of mining workers, they vote for the party who’s going to do the least because they worried about their jobs. So that’s a problem. That’s what we all have to incorporate social issues that just transition into all that we’re doing on climate action. I would just also say on isolationism. I’m not 100 percent sure what’s happening in Canada. Again, where I’m from in Australia, international border has been closed for nearly 18 months. You cannot get out of the country. You cannot get into the country unless you are a citizen. And even then, there is a daily and a weekly cap on how many people can come in. There’s more than fifty thousand Australian citizens still trapped overseas because they cannot get home. And I really worry about this sort of island mentality and we just worry about ourselves. And I can see it in the conversations that I have with people back home about these issues. We just need to worry about ourselves and protect ourselves. I think it is really, really concerning.

Dominique Barker: Well, Fiona, thank you so much. That was a terrific conversation. And thank you for your leadership with the principles of responsible investing and best of luck to you and your future career.

Dominique Barker: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Dominic Barker, and this is The Sustainability Agenda.

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