In a well-intentioned but toe-curling opening session, US musician AY Young took to the stage at the PRI in Person – an annual responsible investment conference organised by Principles for Responsible Investment (PRI), this year in Japan – to sing about the Sustainable Development Goals. Amid a flurry of Michael Jackson-inspired dance moves, Young fell to his knees and urged the rows of suited, sober investment professionals to repeat after him: “We can change the world”.
It was clear, from both his optimism and his messaging, that Young hasn’t spent much time in the sustainable finance space over the past 18 months.
But his mantra did hit on one of the underlying themes of the conference, which saw 1,300 people descend on Tokyo earlier this month: the ongoing lack of consensus about what the role of sustainable finance is in the global ecosystem.
One attendee joked that delegates from the US – the second most highly represented group at the event – were shocked to see investors from elsewhere in the world openly discussing their contribution to a better world during the 25+ panel sessions.
The ‘Values vs. Risk vs. Outcomes’ debate rages on
During a plenary on the current backlash against sustainable finance in the US, Gabriel Wilson-Otto, head of sustainable investing strategy at Fidelity International, talked about how muddled marketing has contributed to confusion about what ESG investments are meant to be doing, and whether they’re achieving their promises.
He highlighted the incompatibility between “the statements around the trillions of dollars that are now managed with sustainability objectives and outcomes” and the fact “we still have trillion-dollar funding gaps for most sustainability objectives we’re targeting globally”, adding that, in reality, many ESG products are focused on risk mitigation, not changing the world.
There needs to be, Wilson-Otto argued, a clearer agreement about “the parameters of financial materiality […] and where you move into the realm of values.”
Off stage, some investors expressed feelings of deep frustration over the current battle between values and financial materiality in the sustainable finance industry, as well as fears that anti-ESG sentiment may spread beyond the US into countries like the UK, Germany and Australia.
Consequently, remarks from Japanese prime minister Fumio Kishida about “strengthening the function of finance that encourages sustainability outcomes” were welcomed. There was a sense that having the leader of a G7 country champion an ESG approach that goes beyond short-term risk management was particularly reassuring at the moment.
Speaking in Japanese, Kishida stated that “to achieve a sustainable society, it is vital to increase investments targeting companies that address societal challenges, while encouraging others to follow suit”.
He added that this approach was in line with investors’ fiduciary duty.
Will Martindale, former head of sustainability at Cardano and founder of consultancy Canbury, attended PRI in Person, and said Kishida’s remarks were important for investors all over the world.
“There’s still some uncertainty within the responsible investment industry around the pursuit of outcomes,” he told IPE. “And the prime minister was quite clear that outcomes are, in his mind, a valid part of investment strategies.”
Japan’s commitments
Kashida also made a series of announcements at the event, starting with the news that seven of the country’s pension funds, with assets worth $600bn, were preparing to join the PRI.
He said Japan would issue the world’s first climate transition bonds, as part of a commitment to shift its economy towards cleaner sources of energy.
The national strategy to achieve that shift, known as GX, has been slammed for its reliance on LNG, ammonia co-firing, fossil-based hydrogen and carbon capture and storage, however, so it will be interesting to see what investor appetite will be like for the notes.
The Japanese government is also convening a group of governments and stakeholders in the region, known as GX Asia, to test drive types of transition finance “that fit and leverage the strengths and attributes of each country,” according to Kishida.
There was optimism among attendees that the prime minister’s announcements could become a template for future countries that host PRI in Person.
The conference has seen a steady escalation in political buy-in over the years: in 2018, when the event was held in San Francisco, former US vice president, Al Gore, gave the keynote. In 2019, the job was done by French Minister of the Economy and Finance, Bruno Le Maire.
The PRI’s ability to land Kashida’s in-person participation reflects the growing interplay between policy and sustainable finance, and sets hopes high for Canada’s commitments when it hosts next year’s PRI in Person.
Other announcements
The PRI’s human rights engagement programme, Advance, launched its methodology for how it will evaluate progress among companies and investors at the conference.
And, adding to the current noise around nature, the PRI also launched a shareholder engagement initiative dedicated to deforestation and land use. Spring, as it’s known, will focus on supply chains and policy lobbying.
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