Could you give me an insight into your responsible investment approach?
Our thinking starts top down. We think about the systemic issues that are effecting the economy and society and what those implications might be for our investment portfolio and the associated financial risks. So we start with that big picture.
Addressing those risks can present investment opportunities. What we try to do is make sure we are aware of them, assess them and take action where possible. Our strategy has three pillars: integration, collaboration and transparency.
The bulk of the detailed work sits with the assets mangers – we focus on setting expectations rather than being overly prescriptive. Being 100% outsourced, that is our primary business model.
It is then how can we integrate responsible investment into the decisions we make, in terms of strategically, the asset manager expectations and what we do on voting and engagement policies, bringing together the integration and collaboration approaches and then finally, communicate it, which is the transparency.
So those three lenses: how we integrate it, who we work with and then how to report it is a matrix of how we go about bringing the approach to life.
Has there been any disconnect between your responsible investment policies and what asset managers are delivering?
Asset managers can often have timelines and mandates that are constructed in a way that are different to the pension funds the mandates are there to serve. We try to bridge that by setting our expectations when we have a mandate. Sometimes it is co-created, where we work closely with the managers. This is essential when are taking on the challenge to integrate climate into an asset class that hasn’t traditionally had that. Our net-zero multi-asset credit portfolio is a good example of this, and the work is on-going.
But yes, we do read about those who do not come up to the bar. And that bar is getting higher, in terms of expectations.
But there is only so much, in terms of time and energy, we can do to bring firms up and there comes a point where you may need for a new manager. We are however very pragmatic, and there are different asset classes with different bars.
For listed equity the bar is quite high and last year we led the work looking at voting on what the differences were on oil and gas companies, post the Paris Agreement. UK asset owners were driving that, but there was evidence that with asset managers, especially the larger ones, the alignment is limited and has diminished in some instances in recent years.
From the other point of view, asset managers have also said they want asset owners to be more explicit about their expectations by setting some parameters.
It is a difficult line to draw when you are trying to be very clear about the outcome you are seeking and the expectations on risk management. We have done some work on bridging the gap by communicating what we expect any manager holding high-impact companies to be able to provide. We need that level of granularity to exist to provide us with evidential-based analysis of the risks around climate and any individual company and its actions to address them.
You have described Brunel as being focused on a ‘real world’ approach to responsible investment. What does this mean?
There are two tactics when approaching climate risk: one is to avoid the problem, the other is to try change the current situation by providing a solution, and that way make progress. So what we mean by real world impact is, whilst sometimes avoiding is the right answer, getting stuck into the difficult things is the more appropriate strategy and will deliver the impact in the real world we seek.
And it is that pivoting to transition finance. It means doing some of the complicated stuff, not just investing in deep green. We need to work with the more tricky parts of the economy. It is picking out the more difficult sectors and companies to focus on.
We try to pivot to the real world. That is why our approach to divestment is more nuanced. It is about really thinking through what is the outcome we are trying to achieve and what are the best mechanisms to achieve it.
So is divestment an option of last resort?
I would say so. That is how I have always categorised it. Divestment, or using investment exclusions, is an appropriate strategy where normal stewardship tools are unlikely to provide the desired outcome.
Although in the coming years I think we will become more nuanced in regards to when is the right time to move away from certain sectors and certain activities.
Could you summarise the key findings of your latest Climate Progress report?
That covered Task Force on Climate-Related Financial Disclosures (TCFD), it also covered off our other climate and ESG-related challenges.
In short, we either progressed or achieved all of the targets we set ourselves. Some were set targets. We have made our net-zero commitment by 2050, but we are looking for pretty material progress by 2030.
We were also able to report a reduction in our carbon intensity of over 50% from our baseline in 2019. Although we are aware that which is not a fantastic measure, but a useful to give a direction of travel in relation to both our portfolios and the wider market. We have also reduced our exposure to the fossil fuel reserve intensity by just shy of 90% since 2019.
Presumably meeting those targets is why you extended your reporting beyond the TCFD requirements.
We use metrics clients have asked for but also to demonstrate progress on our climate policy, which places commitments on us, beyond TCFD. The one area we need to progress, particularly in the product area, is some of the forward-looking metrics in our scenario analysis. That is because we are still trying to navigate how to make best use. But above all, we are very transparent on all of the metrics.
Could you tell me more about your net-zero ambitions?
It is to be net zero by 2050 and operationally, everything we invest in needs to be aligned by 2040. In other words, by then, we need a very clear plan as to how all our assets are going to be decarbonise. So plenty of progress by 2030, by 2040 we should be able to see solid plan.
In your Responsible Investment & Stewardship Outcomes Report you highlighted how Brunel wishes to raise the bar on impactful stewardship. Why has that become more important?
Within stewardship there has undoubtedly been a lot of progress made. The big change is we have been more critical in evaluating at how efficiently and effective our stewardship has been.
What we are trying to say is we need to be much more focused on the outcomes we are trying to achieve. There has to be consequences to stewardship. Otherwise it is not going to make any difference. It is a recognition that we have not always been as effective as perhaps we would have liked to be in corporate engagement.
You have voted against companies that have not come up to scratch on ESG. Is that an important part of your armory?
It is, and it is an area we have stepped up on. Voting, as a signal, is part of the armory. It is a way of reinforcing those engagement conversations. It is a way of proving the changes we want to see.
We have stepped up our voting, which has been enabled by artificial intelligence, which has allowed us to process more information at a quicker rate and give us greater confidence to take action.
Do you see any scepticism among partner funds in addressing responsible investment?
I wouldn’t say scepticism. They get involved in our stewardship and voting and policy and setting those. So there is a lot of engagement. There is sometimes difference of opinions.
Where some of the challenge comes is on the question of: are we having enough impact? Are we seeing the changes? In some instances we are not. So that is a fair challenge.
So it is more about doing more, being more assertive. Where we have faced skepticism, that has helped us put our case better. The majority of partners support the work Brunel is doing.
What are the biggest challenges you face from a responsible investment perspective?
It is you feel like you have to deal with everything, everywhere, all at once. There are an awful lot of challenges. What we have achieved is a much higher awareness of the risk and issues. The level of awareness is so much higher. The expectation from society is you then have to solve all these problems.
Recognising you cannot save the world is important. But going forward we need a concentrated effort in some areas where we can progress smartly. One example is through Mining 2030, led by the Church of England Pension Fund, which comes at the problem in a different way and we need to solve this for a range of RI reasons not just climate. That takes a lot of effort. But that is how to bring about real change.
Do you expect a different approach to ESG issues from the Labour government?
The Conservatives had good moments: they set the legally binding net-zero target, Boris Johnson was very good in drumming up enthusiasm on the run up to COP26 and there was some good momentum. So the Conservatives started strongly, it was more the retrenching when things got a little bit tricky.
Equally, the Labour Government has come out of the gate very strongly. We have the National Wealth Fund, which we have been advising on, they also have commitments to net zero as part of the Transition Plan Taskforce, we are keen we go forward with that, and a commitment to the green taxonomy – initiatives that stalled under the previous administration.
But it is all about resolve and sticking with these strategies. Only time will tell if Labour has the courage of their convictions.
There has been a push back on ESG in some circles: is this an issue in your view?
It has been through a bit more of rocky patch in the last couple of years. There has been a bit of a reality check. The act of being challenged will make us, as a wider group of responsible investors, much better and stronger and help us improve through better communication and articulation on the issue.
We do need to keep pushing though. If you look at some of the recent rollback on the FCA stock listing rules that is deeply disturbing. If it leads to a race to the bottom, it will be counterproductive. We need to keep fighting. And get better at articulating our case.
But if you look at the momentum going into Cop26 in 2021, that was very positive. And overall, we are in a much more positive place than we were many years ago, when many didn’t see responsible investment as a relevant financial issue.
What about the role of supranational bodies and government in addressing climate change and ESG issues?
We do need that ambition from such organisations, such as that set out by the World Bank. We have seen some very positive changes. And we need that. But there is a great deal more needed on harmonisation, in carbon markets and the like, in order to make change happen on a wider scale.
We need to bring about change as a global community. There is still a lot of physical adaptation and resilience that needs to be baked in and this is massively under actioned.
Do you have any hopes for Cop29 in November?
Cop30 is the big one. But solid leadership and ambition at Cop29 will be really welcome, we really need to have updated Nationally Determined Contributions from countries presented there
What are your responsible investment ambitions for Brunel?
It is having that impact. It is about seeing the desired outcomes actually delivered.
What has been the biggest lesson you have learnt from your career?
I think it is I am continually learning. Therefore I have learnt it is important to build a strong network of people who know what they are talking about and regularly tap into that.
Also, I think calling someone an RI expert is an oxymoron: if you are an RI person, you are not an expert in any one area, but you do know how to approach the problem and also who to call.
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