Border to Coast CEO Rachel Elwell: ‘asset owners risk overselling what they can deliver’
Asset owners should manage expectations better, as the rapidly evolving climate finance ecosystem makes it increasingly challenging to set long-term goals that are achievable
Setting realistic expectations when it comes to incorporating climate risks in asset owners’ investment strategies is increasingly a challenge for pension funds and other investors that are subject to intense public scrutiny in the UK.
Managing expectations, and keeping strategies realistic, should increasingly be a consideration for pensions, according Rachel Elwell, chief executive of Border to Coast, the £60 billion LGPS pool managing assets on behalf of 11 partner funds.
Elwell said green investment strategies are difficult to map out in detail as there are many factors asset owners simply do not control.
“There is a risk that asset owners have oversold what they can deliver,” she said at at the Sustainability in Practice event at the University of Oxford, with 64 asset owner attendees that are collectively worth an estimated $8.5 trillion in assets under management.
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“We are seeing some splitting of strong coalitions in financial services because the government hasn’t kept up with leadership. There is a need for investors to engage with governments to help them understand their role.”
However, despite her call to get closer to government officials, Elwell warned against being too influenced by ‘the politicisation of sustainability’.
“The emotion that comes with this is challenging and we have to remind ourselves why we do it.”
"There is a need for investors to engage with governments to help them understand their role."
Having said that, working more in tandem with policymakers and regulators will be particularly crucial in the near future as climate risks become more prevalent and impactful.
“We believe climate change will have a material financial impact on the portfolio so we must understand the risks,” Elwell said.
Herman Bril could not agree more.
The managing director and head of sustainability at PSP Investments, which invests more than C$230 billion on behalf of a range of public pension funds in Canada, said PSP recently introduced a climate strategy set around short-term targets.
Bril stressed this includes goals around investing in green and transition assets, as well as reducing carbon emissions across its entire portfolio.
“The strategy involves mapping investments, data gathering, looking at the carbon intensity of investments and companies’ transition readiness,” he said.
“Do portfolio companies have a plan and is it science-based?” are some of the crucial questions PSP asks before it allocates funds, Bril shared.
He went on to urge delegates “to map” their green assets to get a good understanding of “where they are today, and where they will be in the future.”
Such an approach requires including future climate risks, changes in accounting methodologies, regulation and checking quality of data.
“Refresh and update your strategy every five years,” Bill said. “And realise what you have learnt and how to move forward; move forward step-by-step.”
"We are not an impact investor, but an investor with impact."
Bril acknowledged that the rapidly-evolving climate finance ecosystem makes it difficult to set long-term targets and goals, so it will require an effort on the part of investee companies, governments and regulators to move at the same speed and in the same direction.
“In reality we need all the levers to change,” Bril said.
In addition, he stressed real net zero progress will be close to impossible if decarbonisation efforts are not sped up, with delivery crucial, not mere promises.
And investors should not merely think in terms of risks. “The investment opportunity is massive. We are not an impact investor, but an investor with impact,” Bril concluded.
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