PRI Conference 2022: 5 Key Themes
2022 saw the return of the in-person annual PRI conference, held this year in Barcelona. Bringing together more than 2,400 investors, policymakers, and other sustainable finance stakeholders from around the world, this year’s event had as its theme “The coming of age of responsible investment”.
With more than 40 sessions held across three days, the conference covered a huge amount of ground, from the impact of geopolitics and achieving net zero to tackling human rights and social issues, overcoming data challenges, and keeping up to date with policy, regulation, and stewardship. To make this massive event more digestible, we’ve summarised the topics and takeaways into five key themes:
Geopolitical and environmental crises driving the pace of transition
Over the past 12 months, geopolitical issues have been a central focus across the political and commercial landscape. While events such as the Ukraine war and energy crisis have contributed to some short-term disruption to the sustainable investment agenda, several high-profile speakers noted the increasing pace of the sustainable transition and positive outlook in the medium and longer terms. “The current energy crisis will be a catalyst for a global clean energy future” said the IEA’s CEO Fatih Birol.
Speakers and delegates agreed the pathway has never been clearer. Climate impacts are being felt more keenly than ever, and governments are tightening regulations and introducing new mechanisms to support and incentivise sustainable practices and investments. Commercial forces are also driving the pathway towards 1.5C. More companies are showing their commitment through sustainable initiatives, targets, and the implementation of climate solutions and technologies.
While the immediate fall-out of recent geopolitical issues may see the continuation and even increase in fossil fuel investment as governments shore-up their immediate energy supply, there is now broad recognition that the scales have tilted. Moving away from fossil fuels is the most desirable option both environmentally and commercially.
Changes to policy and regulation are accelerating but more is needed
Policy and regulation were key areas of debate at this year’s PRI conference. Speakers delved into the details and implications of initiatives such as the US Inflation Reduction Action (IRA), SEC disclosure regime, EU’s SFDR and taxonomy, and the UK’s SDR. All agreed that the last year has seen a major deepening of knowledge around regulatory compliance. Recent controversies around greenwashing have also highlighted need to be clear and transparent about how to define and implement sustainable investments.
Attendees also agreed that while policy progress was made in 2022, the overall pace of progress has been slow. There remains much more that could be done, such as creating an environment where companies and investors can plan ahead. Action is also needed to further drive the phase-down/out of coal and other fossil fuels, prevent deforestation, and incentivise investment in nature-based and circular economy solutions.
Inevitably the US anti-ESG backlash came up and while some noted the negative impact this has had, most felt it would not constrain the overall direction of travel entirely. One speaker noted that while ESG has been “politicised and polarized”, there is still strong agreement “across the US political spectrum on issues like climate and energy transition”.
Fatih Birol also spoke of the recent negative rhetoric surrounding the achievability of 1.5C coming from some policymakers, fossil fuel lobbyists and the right-wing media, but made clear that the IEA certainly does not believe the goal of 1.5C is dead. It’s “not what the data shows” he said, “it may be difficult, but it is do-able”.
Tim Gould, also from the IEA, noted that further regulation will soon be needed to ensure the resilience and diversity of green global supply chains. This includes oversight of sectors and geographies where materials are sourced, as well as where products are made and transported.
Stewardship holds the key to real impact
Stewardship and collaborative engagement came up repeatedly. In the context of achieving net zero, several speakers noted that engagement is essential, with all companies on a different journey with different issues to tackle. Companies need to know what’s required of them by the finance sector, and everyone needs to join collaborative movements like GFANZ and NZAMI to show their intensions, learn from others and signal a joined-up direction of travel. Using existing platforms and frameworks such as IIGCC, SBTi etc was also recommended.
On the social side, PRI launched its new “advance” initiative, a stewardship initiative to help investors work together to act on human rights and social issues. Others spoke of the importance of integrating human rights issues into stewardship, using frameworks like the UN Global Principles (UNGPs). These can help define a human rights/social policy, implement a due diligence processes (reactive and proactive), and report transparently against the UNGP criteria.
Speakers noted that collaboration and engagement are helping to enhance understanding across the board, providing investors with the information, tools and assessments to be able to ask the right questions and know that companies are doing the right thing. Although collaborative engagement can be hard and slow, investors should focus on the potential impact they can have by working together on issues like human rights. Expect to see more collaboration and more emphasis on stewardship and engagement across all sectors of the industry.
Progress on data, reporting, standardisation, and commitment
As expected, concerns about data were never far away. However, at this year’s PRI, there was a noticeable shift away from the idea that data is lacking or hard to source (though clearly this remains an issue for some). This time around, speakers broadly agreed there is enough data, it’s just hard to navigate and not always what you need. We can’t keep using lack of data as an excuse when there are more use cases and applications across asset classes and functions that ever before, they said. Several speakers urged the audience to “get on with using what you have” and “don’t let perfect be the enemy of good”. The emerging issue with data seems then to be how to distil and translate it into investment decisions and how to use it to measure and monitor impacts.
While the availability and quality of data seems to be improving, the use of it in ESG methodologies by ratings providers remains a source of frustration for many. With so many providers in the market, each using distinct methodologies, ESG assessment results can vary widely. Many attendees expressed their hope that standardisation – in the form of the ISSB framework - would soon help to streamline regimes and create more clarity for everyone. Many also expect to see standardisation of reporting as regulators like the SEC and FCA seek to develop interoperable regimes for climate and other reporting.
Despite frustrations about the pace of change, many speakers and attendees commented on recent positive industry trends including improvements in target setting, increases in Scope 3 disclosures, and commitment to key platforms and initiatives like TCFD, SBTi and the Net Zero Asset Managers Initiative (NZAMI). Implementing credible transition plans and engaging effectively were highlighted as some of the next big hurdles facing the sector.
Many also agreed that the policy emphasis is now shifting away from a focus on regulatory burden and risk towards opportunity and strategic competition. Speakers noted the increasing prevalence within policy to deliberately align energy security issues with the sustainable agenda, with some governments (e.g., in the EU) driving policies that focus on sustainable growth and the development of renewable energy and other technologies and services which both limit reliance on imported fossil fuels while boosting local economies and tackling social issues like the skills gap and cost-of-living crisis. All agreed that while government progress has been slower than most would like, political and regulatory consensus is now producing policies that are clearer and more supportive to investors.
An increasing focus on real world impact.
“Financial markets have become disconnected from the planet and our people – its a fundamental flaw in how finance works” said Emmanuel Faber Chair, CEO of the International Sustainability Standards Board (ISSB) in his keynote on future expectations. “We are the problem” he noted, and “the system must be changed by us”. Several speakers remarked on the themes of trust and real-world impact, noting that the growth in sustainable finance is partly being driven by ordinary people’s concern about the world and increasing desire to know how their savings are being used. Real world outcomes from investments will be an increasing area of focus for the financial system going forward, they remarked. Investors should expect to be asked to demonstrate their impact, clearly showing how they are contributing to a fairer, cleaner world.
The FCA’s Sacha Sadan also spoke of the “trust deficit” of consumers in the financial sector. “It’s important to focus on not misleading or confusing consumers”, he said. “Governments, corporates and investors all have a role to play in setting parameters and being clear”. He noted that the industry must shift to using more accessible language, for example say “improve” instead of “transition”. He also advised all to be more specific when referring to an action they are taking. For example, a transition plan should accompany your net zero commitments, a target is not enough.
He also discussed how fund managers should explain specifically how they integrate and embed ESG. Simple exclusions are no longer sufficient in his view, and he recommended the use of more sophisticated metrics to show “what you are actually doing with people’s money”.
Other issues raised in relation to real-world impacts included an increased expectation to report on nature and biodiversity (using the new TNFD framework), more attention on diversity and inclusion issues, human rights issues, and double materiality. Several people also noted the need for companies and the financial sector to focus more on appealing to a younger, more purpose driven generation whose expectations around climate and DEI will drive the direction of the industry and the wider world.
If you’d like to know more about some of the items discussed, or you’d like some assistance with the recommendations mentioned above, contact us.