Hot topics for ESG investment in 2019 setting the pace for 2020

If 2019 is anything to go by, the global shift in awareness and action with ESG-focused investing is set to pick up pace.

Interest in sustainable investment continued to grow throughout 2019 as several topical issues unfolded. We’ve been pleased to see our clients become increasingly engaged with the broader impacts of their investments, beyond their immediate financial returns, and proud to say we took positive action in response to several issues that were prominent throughout the year.

Top trends

Climate change was undoubtedly the most significant sustainability topic of the last twelve months. In September, the World Meteorological Organisation¹  released its latest report on the global climate, showing the recent five-year period to be the warmest of any equivalent period on record. The report also identified a long list of concerning environmental changes associated with this finding, including continued increases in carbon emissions, rising ocean acidity, and an abrupt decrease in Antarctic sea ice to name just a few.

We have seen record-breaking wildfires in the Arctic, widespread fires in the Amazon, and, closer to home, catastrophic bushfires in Australia. Parts of Australia are also experiencing some of the most severe droughts on record.

Investors are becoming more aware that climate change presents a material risk to portfolios. Events such as the UN Climate Change Summit, COP25 in Madrid, the "Greta effect" and global climate change demonstrations have drawn attention to this risk. As a result, the number of shareholder resolutions concerning climate change has risen significantly this year, challenging companies to do more with their disclosures, commitments and real actions.

At AMP Capital, we’ve worked closely with companies and other large investors to improve reporting and disclosures, set emissions targets and develop strategies to achieve them, align capex and divestment planning with the Paris Agreement, plan for climate adaptation and resilience, and lobby governments for climate-friendly business settings. We’ve made good progress to date through direct engagement work and collaboration with global investor initiative Climate Action 100+, but there is still a long way to go and we will continue to drive more change in 2020 and beyond.

Concerns also grew around tailings dams, which are built to contain toxic mining waste and prevent environmental contamination. Unfortunately, in recent years a number have proven to be vulnerable to failure, and in January at least 250 people were killed and the local ecosystem severely affected when a one such structure collapsed in Brazil. We’ve been probing mining companies about the safety of their dams for several years now, and with the UN PRI leading a global engagement agenda on industry safety standards and transparent records of tailings dams, we’re seeing steps in the right direction.

The Commonwealth Modern Slavery Act will come into full force next year, making human rights and the manufacturing supply chain another hot topic in Australia. The fashion industry is a prime example: consumers are demanding cheaper products, sooner, but as the retail price of clothing continues to fall, the human and environmental costs have increased dramatically. Suppliers have been known to cut corners by skipping the necessary social and environmental checks, putting vulnerable people at risk of exploitation.

Earlier this year we received another reminder of the risks in this sector after the media exposed a mass internment camp in the Chinese province of Xinjiang, and the forcible detainment of over one million Uyghur Muslims in what the government calls a vocational training camp. Women in the camp had been forced to work in factories which supplied some of the world’s largest clothing brands.

At AMP Capital, we’ve been asking companies to consider the Modern Slavery Act, dig deep into their supply chains, and be open and transparent about any concerning findings. Ideally, we’d like to see this type of reporting used to disclose a wide range of social and environmental risks that could still be occurring in supply chains, in order to put a definitive end to these unethical and dangerous practices.

Social media remained in the spotlight following 2018’s Cambridge Analytica scandal, where the broader population became aware of the potential misuse of personal information by global technology giants. The dark possibilities of social media platforms shook the world in March when a series of shootings in Christchurch, which killed 51 people and injured many others, were live-streamed online by the shooter. This tragic event horrified the public right across the globe, and sparked widespread calls for social media companies to strengthen controls and prevent the streaming and distribution of objectionable content. AMP Capital joined one such collaboration of global investors seeking to engage these companies and achieve these changes, holding the likes of some social media giants accountable for what appears on their platforms.

New Zealand’s subsequent ban on semiautomatic weapons also put guns back in the spotlight, causing many Environmental, Social and Governance investors to revisit and tighten their ethical screens on civilian firearms.

While it is saddening to reflect on each of these events, we can find hope in the positive actions that arose from them and work towards increasing the accountability of companies operating in Australia and around the world. We will continue to take a stand on these issues and make an impact where we can, as we work with our clients to support a better future.
 

¹ World Meteorological Organization, 2019, Global Climate in 2015-2019: Climate change accelerates