Andy Howard, global head of sustainable investment, Schroders
Reflecting on what has been a tumultuous year for ESG and markets in general, what has been your biggest challenge and how have you overcome it?
At Schroders, we committed to transitioning towards net zero over the coming decades, including setting a Science-Based Target, validated by the Science-Based Targets initiative earlier in 2022.
But setting a target is the easy part. How we, and other businesses, decarbonise is critically important to the value we will create for our clients. We have created the Climate Transition Action Plan to outline a roadmap.
Political momentum clearly slowed in 2022, but importantly the private sector continues to push ahead, helping close some of the gap between the ambitions global leaders have laid out and corporate readiness for transition.
The COP27 climate summit in Egypt in November did little to cement global commitments to action. That said, agreement on a “loss and damage” fund to help developing nations should ease one key challenge to delivering the changes needed to reach the goals laid out in Paris in 2015. Attention will turn to COP28 in the UAE later in 2023.
Our focus has been on using our voice and influence to engage the most exposed companies and pushing them to lay out transition plans. In the year ahead we will be intensifying those efforts.
Please provide one prediction for the ESG investment world for 2023.
At a human level, a cost-of-living crisis has taken grip in many countries and while the most acute pressures may abate in 2023, poverty is a threat we will be monitoring. Few governments have the fiscal capacity to absorb shortfalls in household budgets and social stresses could intensify. Companies are coming under pressure to ensure vulnerable workers are protected – whether through wage increases and benefits for their own employees or their responsibility to workers in supply chains.
We could see greater pressure on the political systems. This could undermine investors’ faith that political leadership will clearly define priorities, pushing responsibility back to companies and investors like ourselves.
While climate change and nature have dominated headlines, particularly in the run-up to COP27 and COP15, we expect a bigger focus on social issues, including human capital management, human rights and diversity and inclusion in the new year. These are core themes for active ownership for us at Schroders.
Our own survey of more than 700 institutional investors in 2022 found around half (48%) are focusing on the impact of their investments, up from about a third (34%) in 2020. We expect that trend to continue.