This blog was written by Ros Jackson.
Environmental, Social and Governance (ESG) criteria are playing an ever increasing role in investment decision making - both for consumers and investment firms.
For pension schemes, regulations introduced in 2018 have required schemes to update their statement of investment principles (SIP) to include the scheme's policy on financially material considerations, including ESG factors like climate change risk, assessed over the time horizon appropriate to the scheme. From 1 October 2020 , trustees have also been required under those regulations to disclose their policy in relation to the arrangement they have with their asset managers - which includes showing how they incentivise the investment manager to make decisions based on not only financial but also non-financial performance of investee companies over the medium and long term. The Pension Schemes Bill, which is predicted to be law by the end of the year, includes the power for the Government to make regulations to reinforce the duties of schemes to report on their climate change risks and otherwise to secure effective governance in relation to the effects of climate change. All the indications from Government are that the this is seen as a priority issue.
Speaking to Burges Salmon, as part of our Perspectives on Infrastructure series, Sinead Walshe, Director of Infrastructure debt at Aviva, notes that the focus of Aviva Investors is on "meeting investor objectives from both an investment and an environmental, social and governance (ESG) perspective."
“Aviva Investors was an early mover on the ESG agenda and it is inherent within their investment process, with Walshe observing that investors are increasingly focused on the societal element.”
Trustees are required to consider, as part of their investment decision making, any factors which they consider to be financially material; it's clear that ESG factors are becoming more important to investors but the financials are also predicted to line up. The Financial Times reported that "assets in sustainable investment products in Europe are forecast to reach 7.6tn EURO in the next five years, outnumbering conventional funds".
If, as Aviva Investors consider, a focus on ESG is becoming increasingly important to investors in infrastructure projects, pension funds may be drawn correspondingly to assess infrastructure as potentially an appropriate, long-term and stable investment.
We have seen a continued confirmation from our clients that they like and are committed to infrastructure as an asset class given its resilient qualities and strong ESG credentials