Brightwell’s Emma Douglas: “The industry can sometimes put too much weight on impact investments instead of encouraging more traditional investments to improve real-world outcomes.”

14 Mar 2025

The sustainable investment and stewardship lead for the body which runs the BT Pension Fund tells Andrew Holt about integrating sustainability into all portfolios, the unintended consequences of nature and why it’s business as usual for diversity.

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How would you describe your role?

My focus is on sustainable investment and stewardship. I look at the sustainable investment strategy, thematic work and social issues such as DEI, as well as manager oversight of the sustainable investment approaches.

Sustainability is integrated throughout our investment approach. On the portfolio construction side, there could be work on the data front, while the manager research team might look at specific strategies. I will then work with the team and provide specific expertise, as and when is necessary, to help the investment decision making.

So you don’t have a bucket for sustainable investment – it is in all of your investments?

Sustainability factors are considered in the investment process to improve risk- adjusted outcomes. Therefore, it is considered for all of the portfolio. We call it a horizontal approach, rather than a vertical and stand-alone function.

What is your approach to investing sustainably?

We set up a four-pillar approach when thinking about our net-zero ambition. So we have portfolio construction, mandates and managers, stewardship and advocacy.

We also have a fifth pillar, Brightwell corporate, so our sustainability approach is aligned throughout the organisation.

We have evolved our approach from thinking about ESG risks to focusing on systemic risks and opportunities – so thinking about nature, climate and inequality. And because we encourage a more holistic approach, focusing on sustainable outcomes is linked to improved risk-adjusted investment outcomes over the long term for our clients.

When we were thinking about net zero previously, it was perhaps more about an isolated risk to the portfolio. But as time has gone by, we have realised the inter-connectedness of sustainability risks, which means they cannot be tackled in isolation.

Are any of these pillars more important than the others, or are they integrated?

They are integrated, but it is also about taking a nuanced approach. We focus on what we consider to be the most material risks and opportunities. We do materiality mapping to understand the sectors most exposed.

There is a theory behind it: water scarcity, for example, is a key risk and comes up in many portfolios.

It sounds like you have been on an evolving journey over the last few years.

Absolutely. Within the industry there is now more talk about the inter-connected- ness of these risks and thinking about them together and the trade-offs. This comes back to being able to link our sustainability approach to generating the right outcomes for our clients.

Are you at the end of this developing process?

Everything is a form of continual evolvement – as it should be. Sustainability moves on quickly. New technologies are changing. We need to keep up to date, but we are happy with where we are and remain pragmatic with how we evolve.

How do these approaches sit within the overall Brightwell/BT Pension Scheme portfolio?

It is an integrated and pragmatic approach, so we do not necessarily focus on small allocations to an impact portfolio, for example.

It is thinking about what will drive real- world change. We could easily decarbonise the portfolio overnight by getting rid of the top emitters, but that is not going to have real-world impact. We want to encourage those who might not have committed to the energy transition to do so over time.

Could you give me an example?

We have examples within our real estate and infrastructure investments – last year we took the BT Pension Scheme members to an energy recovery facility that is in the portfolio.

The industry can sometimes put too much weight on impact investments instead of encouraging more traditional investments to improve real-world outcomes. A combination of things are need- ed to drive that real-world change.

So that real world change is key?

It is key. We can reduce portfolio emissions through exclusion, but that doesn’t do anything to the level of emissions in the atmosphere.

What are you looking to do next with your sustainable investments?

We are always researching new developments – how managers are assessing opportunities around biodiversity. But we are focused on research and understanding portfolio risks and opportunities at this stage.

About 18 months ago you undertook a project with the Cambridge Judge Business School to look at nature-related risks. Why did you do that and what did it reveal?

That was a good starting point for our nature work. From the outset we felt we needed to understand how nature had an impact on the portfolio, which is a complicated topic. We felt that it was necessary to get a good grounding in what the risks could be.

We also wanted to understand how nature connects with climate and feeds into portfolios as well as how our managers are thinking about this.

Is this part of a wider commitment to biodiversity?

It could be. Many organisations are setting biodiversity targets, but we are not in this position. With nature we have to be mindful that there could be unintended consequences to setting nature targets.

You have committed to carbon neutrality by 2035. That is quite ambitious, but is it realistic?

It is ambitious. We have made good progress in reducing emissions across all asset classes for one of our clients who also has a net zero by 2035 ambition.

I would say by starting earlier, it has focused our minds and opened up longer- term opportunities. We have also said that progression might not be linear and that we are dependent on global developments.

Are the government and supranational bodies doing enough to create a frame- work on sustainability, net zero and climate change that investors can follow?

There is always more to do in these areas. In general, we are proponents of using industry frameworks. We are mindful that governments are working on a shorter timeframe of four-to-five years. Our clients are long-term investors, so we have that in mind.

Is it frustrating that the government is working on a different timescale to institutional investors?

We always want to see more ambition to move the sustainability agenda along. We are seeing good progress, generally with much wider adoption and understanding within the market. Even over the last five years there has been significant change in the awareness of climate change.

On that though, is the Net Zero Asset Managers initiative suspending operations after the withdrawal of several big asset managers a concern?

It was disappointing to see that happen. We value collaborative initiatives, particularly around systemic risks like climate change. It cannot be tackled alone. But there is now a greater appreciation of the nuances around climate change. You are balancing real-world decarbonisation versus portfolio decarbonisation.

We continue to engage with managers on this topic and want to see their climate activity continue. Whatever the forum they want to do it in, continue the work that has to be done. I don’t want the ambition to be scaled down.

Does the suspension of the initiative create an uncertain future?

We haven’t heard what the outcome could be. It could bounce back, maybe with some nuances and terms changed or updated, but the suspension has raised significant concerns over its future and made it public.

Do you think the same could happen with the asset owner equivalent?

We are operating in a different environment. So my expectation is that the asset owner equivalent will continue. We get a lot of value out of collaboration and sharing knowledge across asset owners.

Does the wider critical focus on ESG concern you?

We need to be mindful of the developments on a global scale. Our clients are investing for the long term and we need to do everything that is in members’ best interests. We are not working in four-year cycles, so providing our managers follow what we want them to do, we hope it is business as usual.

Are asset managers up to speed on all things sustainability, net zero and ESG?

There is a range of expertise and focus in the market. Some are leaders, others are catching up, but the majority are up to speed.

What is more debated is on the specifics and the time horizons. Things like oil and gas – at what point could they become stranded assets? That is a key question. Do you engage, divest or bene t from potential short-term pro ts?

What do you do in such a situation?

We want to facilitate the transition to a lower-carbon economy and a more sustainable world. We invest and don’t have blanket exclusions but what we do is engage to ensure companies are aligning with a lower-carbon economy over the long term.

If that engagement is unsuccessful over time, then we could look to divest if we felt there was a detrimental impact to our risk-adjusted outcomes.

So effective stewardship is important?

It is huge. We place a lot of emphasis and value on stewardship.

How do you approach stewardship?

We work with EOS at Federated Hermes: they are our stewardship provider. We also get involved with some collaborative initiatives and engagement.

For example, we have just signed up to Nature Action 100. We engage with our managers to understand their stewardship approaches and push for alignment to the ambitions of our clients: whether that be net zero or something broader.

We will make sure they are aligning with engagement activities, which hopefully will lead to positive outcomes over the coming years.

Is the investment industry collectively doing enough on ESG-related issues?

There is always more to do in this space. We now have more understanding of the risks and opportunities, and this is developing each year. We have gone from thinking about climate to an industry, now looking more at nature and I can see social being the next focus.

One final point on diversity, has it dropped off the investment agenda?

I would say it is more discussion than it is action at the moment, but it is evolving. Particularly in Europe and the UK, I am not hearing or seeing companies dramatically change their approach as they consider it a way of improving company performance. The situation is different in the US.