CFSGAM has released the 2018 Responsible Investment & Stewardship Report, coinciding with the launch of the Responsible Investment Association of Australasia's (RIAA) Conference in Melbourne today.
This year the report has a strong focus on climate change. The asset manager believes that meeting the 1.5oC target will require significant ambition and innovation across sectors.
CFSGAM’s climate change working group has recommended that companies and investors incorporate a broader range of climate change implications in their strategies, and disclose in accordance with the Task Force for Climate Related Financial Disclosure’s recommendations to better understand and accelerate the transition to a low carbon economy.
The CFSGAM report introduces the firm’s views on five key categories of climate change risk and opportunity and will release a series of papers on each in the coming weeks. These categories will influence its investment processes and analysis:
1. Physical risks
2. Regulatory intervention
3. Business transition and stranded asset risk
4. Director duties and legal risk
5. Reputational risk
Pablo Berrutti, Head of Responsible Investment Asia Pacific for CFSGAM, speaking at the RIAA conference said “At CFSGAM we believe climate breakdown has diverse, urgent and complex implications for investors and the companies we invest in. However, the current approach to assessing climate risk is not comprehensive enough.
Mr Berrutti said: “Carbon footprinting doesn’t include important physical and transition risks. We have seen some funds promote a low carbon footprint despite holding assets in equally exposed sectors like pipelines or coal transport.
Scenario analysis is complex and subjective. We believe it can miss significant risks and opportunities in portfolios and can, at times, be misleading. Few, if any, we have seen, have found a significant strategic change is needed, even where a zero carbon economy would clearly require it.”
The asset manager has improved its approach in this area for over a decade and fully discloses its progress, including clear statements from each investment team and the broader organisation, case studies, and interactive carbon footprints, in an effort to engage clients and other stakeholders.
The asset manager believes that a narrow consideration of climate change risks – or any other ESG related risk – can negatively impact performance. “While we still have further to go, we believe that the integration of ESG and stewardship in our investment processes contributes to strong financial performance for our clients and positive long term outcomes for businesses.”
The report makes it clear that genuine improvement in responsible investment requires a strong culture and shared purpose. CFSGAM’s employee engagement programme on issues from gender diversity to ESG education and training is the foundation that allows its work on climate change to become deeply embedded across the organisation.
Mr Berrutti added: “It is our duty as stewards to protect and grow our clients’ capital. Our belief is that ESG issues including climate change constitute important sources of risk and return and provide insights into the quality of the companies we invest in. We also recognise that as stewards we can positively influence these issues.”
Pablo Berrutti is available for interviews on the sidelines of the Responsible Investment Association of Australasia conference in Melbourne today and also over the phone.