The European High-level Expert Group on Sustainable Finance defined sustainability as ‘making economic prosperity long lasting, more socially inclusive and less dependent on exploitation of finite resources and the natural environment’.  This is particularly poignant in a world facing systemic challenges of the highest magnitude: a global pandemic, growing social inequality and climate change.  How do boards ensure they are properly informed in overseeing these challenges while preserving and enhancing long-term value? How are the many facets of sustainability – financial, human and natural capital – implemented in strategy, risk and innovation? What should be prioritised and how is this best communicated to shareholders and all relevant stakeholders?

Corporate boards should assess the impact of climate change on the company business model and how it will be adapted to meet the needs of a net zero economy as part of a long-term strategy. To what extent do companies adequately disclose how climate change is reflected in governance, strategy and risk? How many companies publicly set targets – and a timeframe – to reduce emissions in-line with 1.5°c global warming? Should investors have a binding vote on ‘say on climate plans’?

This year, investors will scrutinise a company’s longer-term response to the COVID crisis and recovery and how that relates to CEO pay and performance. In addition to financial performance metrics, quantifiable indicators that are material to the company’s sustainable value creation and preservation, such as human capital and natural capital will be increasingly analysed. How are these measures implemented in practice? How do company’s align CEO remuneration with that of the workforce to ensure an equitable distribution of awards and benefits?  How does progress differ between markets and industries?

This year, ICGN, in partnership with the UN Global Investors for Sustainable Development Alliance, will review the ICGN Model Mandate. The Mandate, published in 2012, provides example terms for asset owners to consider when drafting stewardship obligations in their contracts with investment managers. It will be updated to help shift the behaviours of key actors along the investment chain towards a longer term, sustainable perspective, particularly those related to the UN Sustainable Development Goals. How will this impact the asset owner and asset manager relationship? To what extent will it influence performance measures and oversight? How have mandates evolved to incorporate sustainability and what are the priorities for the future?

Many investors are committing to net-zero portfolios by 2050, encouraged by a raft of sustainability related requirements on asset owners. TCFD focuses minds on how investment portfolios are positioned for the transition to net zero carbon emissions, Article 173-VI in France focuses on disclosure around carbon risks and climate policies while, in the UK, pension funds must explain how the trustee takes account financially material factors including those relating to ESG in company engagement and voting. How robust is this disclosure? What are the obstacles? To what extent is it driving accountability from asset managers and investee companies?

Earlier this year, the European Commission concluded a far-reaching consultation on the EU company law framework to promote sustainable corporate governance and company law, and in March the European Parliament announced plans for a new binding law that ensures companies are held accountable and liable when they harm – or contribute to harming – human rights, the environment and good governance. The ICGN’s Global Governance Principles emphasise that directors have a legal duty to act on an informed basis, with good faith, care and loyalty to promote the long-term best interests of the company to preserve and enhance sustainable value creation. How do mandatory and voluntary requirements harmonize for best effect? What does this mean in practice for company boards and investors alike?

The deployment of assets by investors into sustainable index funds reached a record of near $1.7 trillion in 2020, up from 50% over the previous year according to Morningstar. This drives capital to those companies most willing and able to embrace the intangible drivers of value – human and natural capital – as well as tangible financial factors. This transition towards sustainable investments is facilitated by increasingly sophisticated ESG indices and sustainability investment funds.  This session will discuss what ESG data and disclosures investors find most clear and useful, and how stakeholders are navigating this space.