Top Five Insights from PIMCO’s 2021 ESG Investment Summit: Financing a More Sustainable Future
PIMCO’s annual ESG Summit – hosted virtually this year – aimed to help participants keep pace with the rapidly evolving landscape of environmental, social and governance issues within the world of investing, with a particular focus on the transition to net-zero emissions. PIMCO investment professionals were joined by Mark Carney, UN Special Envoy on Climate Action and Finance, PIMCO Global Advisory Board member and former governor of both the Bank of England and the Bank of Canada; Carlos Brito, CEO of Anheuser Busch InBev; and Birgit Böhm, senior vice president and group Treasurer at BMW. Here are some of the main takeaways:
1. BONDS HAVE A KEY ROLE IN FINANCING THE NET-ZERO TRANSITION
Building a sustainable future is a capital-intensive undertaking. Over the coming years and decades, we will see trillions of dollars of additional sustainable investments at the sovereign, local government and corporate level. A unique characteristic of fixed income markets is that companies are typically repeat issuers of bonds, meaning they have to come back to market and sell their securities -- and therefore their story -- to investors on a regular basis. Much as these companies have to care about maintaining their credit ratings, they increasingly must pay attention to upholding and improving their sustainability commitments and credentials. This mechanism of market engagement gives fixed income investors a special seat at the table to partner with issuers to shape the future of sustainable bond investing and influence positive change, while also creating opportunities for investors.
2. THE IMPORTANCE OF “ENGAGEMENT”
The early days of sustainable investing mainly sought to exclude companies that didn’t meet certain criteria. More recently, the focus has shifted on broader drivers of value with greater emphasis on evaluation of investments and engagement with companies. In our view, engagement with a company’s management can often have the greatest impact, as investors can develop a deeper understanding of an issuer and a particular investment while also advocating for change.
3. DATA IS A CHALLENGE, BUT DEVELOPMENT OF GLOBAL STANDARDS WILL FOSTER EFFICIENT CAPITAL ALLOCATION
Despite the explosion in ESG data in recent years, there are undeniable challenges due to the quality and consistency of issuer disclosures, particularly in relation to climate-related risks. However, progress is being made. Several years ago, the Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information. In addition, the International Financial Reporting Standards (IFRS) Foundation is developing a new Sustainability Standards Board, with the intent of adopting a climate disclosure standard, similar to the TCFD. As countries have progressed toward adopting similar accounting practices, sustainability standards should likewise start to converge with more issuers disclosing in accordance with these standards, supporting more informed decision-making for investors involving the allocation of capital. For now, in-depth analysis of the available data and active engagement with companies remain crucial to making informed judgements about their ESG trajectory and commitments.