Governance
Science-based targets key to addressing the world's biggest challenges
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The global pandemic has offered few, if any, positive outcomes. It has precipitated a global recession the likes of which hasn't been seen since World War II, increased joblessness in the US alone by over 800%, and driven the first quarter global debt-to-GDP ratio to a new high of 331%. [International Institute of Finance: Global Debt Monitor, Sharp Spike in Global Debt Ratios, July 2020] How 2021 will play out in economies across the globe, and the consequences for investment managers, remain difficult to predict.


A major turning point for ESG
 

If there's any good news to flow from the pandemic it is that COVID-19 has increased the world's focus on climate change, biodiversity and the imperative of taking a sustainable approach to investing.

For investors, the primary reason for this new focus on sustainability is the fact that they have experienced first-hand the link between an unforeseen pandemic and real economic pain. There is a growing realisation that the impact of environmental, social and even governance risks can and will have negative financial consequences.

The results of the US presidential election will have flow-on effects for investors, with President-elect Biden expected to recommit to the Paris Agreement when in office. Joe Biden's stance on climate change, combined with Biden's on-record comments that he will be guided by science, is good news for responsible investment managers, like our responsible investing affiliate, Mirova. Increased focus by the world's biggest economy on addressing climate change will mean more allocation of capital to initiatives like those Mirova takes, and we hope will see governments committing to the transition away from fossil fuels. 

In Australia, the 2018 Banking Royal Commission and ensuing policy debate surrounding the concept of "members' best interest" also created discussion about the role ESG plays in creating investment portfolios which align with the best interest imperative. In addressing the repeated failures of financial institutions to create cultures which allowed them to respect and uphold their social licence to operate, Commissioner Hayne repeatedly drew attention to the 'failure of governance' and the 'lack of ethical culture'; concepts which lie at the heart of responsible investing.

He said that a board which is "skilled and efficient in the proper supervision of the funds in the best interests of members" is a board with strong and ethical governance.


We hear the same sentiments from the superannuation funds and institutional investors we work with. For them, as for us, acting in members' best interest means putting ESG integration and responsible investing at the forefront of investment and superannuation fund design and implementation. Investment managers and asset owners understand that they will continue to be subjected to high levels of scrutiny - with the aim of understanding whether they are good stewards of capital and good corporate citizens.

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