By Cathrine de Coninck-Lopez, Global Head of ESG at Invesco.
I have every reason for optimism in 2022. There is clear progress in the environmental, social and governance (ESG) space. ESG is everywhere. It features in daily discussions with fund managers on their investment process; in conversations with the globe’s smallest and largest corporates; and in Invesco’s recently converted suite of European funds that promote ESG characteristics — all in the context of the real commitments and show of financial muscle on the sidelines of COP26.
Real momentum is building. Policymakers are raising the bar; corporates are responding to consumer trends; and the financial services industry is finding its voice. This all sets the scene for material steps forward in 2022. The priorities and themes that I am directly working on include net zero implementation; transparency in ESG profiling; the journey of ESG data comparability and coverage; and outcome-based corporate engagement.
Net zero implementation – the Institutional Investors Group on Climate Change (IIGCC) defines net zero implementation in three stages. First, there is a decarbonisation journey, through which portfolio-level carbon footprints must be 50% lower by 2030 and net zero by 2050. Secondly, company-level assessments of alignment to net zero must take place, which needs a targeted lens for evaluating companies. Thirdly, the IIGCC mandates engagement for the continual improvement along the spectrum of net zero alignment. In 2022 we will see the industry — which has committed $57 trillion of assets in backing the Net Zero Asset Manager Initiative — working to address these areas.
Transparency in ESG profiling – the alphabet soup of ESG is not helpful. No one is arguing that this is not a problem. The reality is that there is a spectrum of ESG needs across the industry, and this requires different implementation and focus for various ESG data providers and results. However, the industry needs to work harder to find a meaningful way of communicating ESG profiles of funds and solutions to clients.
Data comparability and coverage – the creation of the International Sustainability Standards Board sets a line in the sand for global standards on ESG reporting by companies. This will go a long way in feeding more standardized metrics and data into our systems. While still mindful of the need to augment and customize them to fit our proprietary views of ESG materiality, Invesco ESGintel, our proprietary ESG rating tool, will benefit from these trends and continued improvements to data inputs.
Outcome-based corporate engagement – the UK Stewardship Code, of which Invesco is a signatory, clearly outlines the need to address the outcomes of engagement. Invesco engages in dialogue on ESG with thousands of companies annually. Improving the tracking of outcomes in the real world is an opportunity to ensure corporate accountability while scaling our influence.
Many of these themes are not new, yet they have taken on new life as ESG becomes more embedded into every single business function at Invesco and many, but not all, financial services players. This means that ESG needs to meet the same standards as long-standing processes and systems. For a topic that is highly complex in nature and breadth, this is no mean feat. In this next wave, I believe 2022 will be the year where ESG aspirations meet implementation.