The Evolution of Responsible Investment: Insights from the PRI in Person Conference 2024
Since its inception in 2006, the United Nations-backed Principles for Responsible Investment (PRI) has garnered significant traction within the global investment community. By 2021, the collective assets under management represented by PRI signatories exceeded a staggering US$121 trillion, reflecting a robust commitment to integrating environmental, social, and governance (ESG) factors into investment strategies. This commitment was palpable at the recent PRI in Person conference held in Toronto, where industry leaders gathered to discuss the future of responsible investing.
Opening Remarks: A Call to Action
The conference commenced with inspiring remarks from Luke Gould, CEO of Mackenzie Investments, a prominent Canadian advocate for responsible investing. Gould emphasized that sustainability transcends mere buzzwords; it represents a fundamental shift in capital market approaches. He articulated the core values of responsibility, active ownership, and transparency that underpin Mackenzie’s commitment to sustainability. This sentiment resonated throughout the conference, setting the stage for critical discussions on the challenges and opportunities facing the responsible investment community.
Key Takeaways from the PRI Conference
Over the course of three days, the conference provided a platform for thought leaders to share insights and strategies. Here are the top four takeaways that emerged from the discussions:
1. Sustainability Disclosure is the New Normal
The landscape of sustainability disclosure is rapidly evolving, with varying degrees of regulatory frameworks across the globe. The European Union is at the forefront with its sustainable finance taxonomy and Corporate Sustainability Reporting Directive, while Canada has recently introduced plans for a green labeling taxonomy and a legal framework for corporate climate disclosures.
For investors, the expectation for sustainability disclosures has shifted from optional to essential. Priti Shokeen, managing director at TD Asset Management, highlighted that her team now anticipates portfolio companies to provide sustainability disclosures, even if not mandated by regulations. This information is crucial for asset managers, especially as they are increasingly required to report their own portfolio emissions.
2. Engagement and Divestment: A Dual Approach
The debate between engagement and divestment strategies continues to be a focal point within the responsible investment community. Proponents of engagement argue that investors can drive meaningful change by actively participating in shareholder meetings and influencing corporate behavior towards decarbonization. Conversely, divestment advocates maintain that selling shares in industries like oil and gas is necessary for ethical reasons and to hinder these companies’ access to capital.
At the conference, it became clear that a hybrid approach—utilizing both engagement and divestment—may be the most effective strategy. Joseph Bastien, trustee at the Wikwemikong Trust, noted that the binary choice between engagement and divestment is outdated and does not reflect the complexities of modern investing. Deborah Ng from GMO LLC echoed this sentiment, emphasizing the importance of real-world emission reductions in achieving net-zero goals.
3. The Need for Transition Plans Aligned with 1.5°C Targets
Investors are increasingly impatient with the slow pace of government regulations mandating corporate decarbonization. Carmen Velasquez from Alberta Investment Management Corporation stressed the importance of providing companies with specific feedback on their sustainability efforts. However, many companies struggle to demonstrate how their capital expenditures align with a 1.5°C pathway.
Mark Carney, former governor of the Bank of Canada, underscored the urgency of having transition plans in place. He argued that while it took a decade for climate disclosure to become mainstream post-Paris Agreement, the investment community cannot afford to wait another decade for meaningful action. Carney called for governments to adopt consistent taxonomies and mandate transition plans for large corporations and financial institutions, emphasizing that a plan is essential in navigating the climate crisis.
4. A Cautious Approach to AI in Responsible Investing
As artificial intelligence (AI) continues to permeate various sectors, the question of how to invest responsibly in AI has gained prominence. Kirsty Jenkinson from the California State Teachers’ Retirement System highlighted the dual nature of AI’s impact on sustainability. While AI can exacerbate electricity demand and pose challenges to achieving net-zero goals, it also presents opportunities for innovation in renewable energy.
Investors must evaluate companies’ use of AI through an ESG lens, considering ethical implications, privacy concerns, and emissions. Cameron Schuler, an AI expert, emphasized the need for tech-savvy individuals on corporate boards to ensure responsible AI governance. As AI becomes increasingly integral to business operations, responsible investors must scrutinize how companies manage the associated risks.
Conclusion: The Path Forward for Responsible Investment
The PRI in Person conference 2024 illuminated the evolving landscape of responsible investing, underscoring the need for transparency, engagement, and innovative solutions. As the investment community grapples with the complexities of sustainability, the insights shared at the conference will undoubtedly shape the future of responsible investment practices. With a collective commitment to integrating ESG factors into investment decisions, the path toward a sustainable financial future is becoming clearer, albeit with challenges that require ongoing collaboration and action.
As we move forward, it is imperative for investors, companies, and governments to work together to create a resilient and sustainable economy that prioritizes the well-being of both people and the planet.