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Five Takeaways from the London ESG Investor Summit 2019

Incorporating ESG into fixed income, issuer engagement and the policy-ambition gap were among the topics discussed.

At our recent London ESG Investor Summit, we were delighted to host more than 130 clients for a lively discussion on the sustainable investing landscape and the growing role of debtholders in effecting positive societal change. The sessions leaned on a combination of PIMCO ESG specialists – including portfolio managers, research analysts (sovereign, credit, climate and engagement) and product strategists – and industry leaders, like Fiona Reynolds and Jake Reynolds.

Here are our top five takeaways:

A just transition is important

Fiona Reynolds, CEO of the UN Principles for Responsible Investing (PRI), reflected on the potential benefits of a low-carbon world – both economic and social. The 2018 New Climate Economy report, for instance, concluded that transitioning to a low-carbon growth path “could deliver a direct economic gain of US$26 trillion” and “over 65 million new low-carbon jobs” by 2030. However, moving from a high-carbon economy to one focused on renewables needs to be properly managed, otherwise we risk creating stranded workers and communities, such as those in western economies during the decline of traditional manufacturing industries in the post-second world war era. Initiatives like Investing in a Just Transition offer a potential solution by seeking to align investors’ efforts around climate change with inclusive development pathways.

A policy-ambition gap exists

While the number of public policy responses to ESG (environmental, social, governance) issues has soared in recent years and the UN Sustainable Development Goals (SDGs) have received widespread support, such enthusiasm could flatter to deceive. In the case of climate change (SDG #13), current policies would likely fall short of the globally agreed aim of holding warming well below 2°C this century (see Figure 1).

Five Takeaways from the London ESG Investor Summit 2019

Data is a barrier

Dr Jake Reynolds, executive director of the Cambridge Institute for Sustainability Leadership, explained how transparent measurement and reporting are critical in enabling investors to make informed decisions and direct capital towards positive impact. Unfortunately, current corporate environmental and social disclosures make this difficult to do. For instance, only around 40% of MSCI World Index constituents currently report on climate change. Encouragingly, there is existing guidance for issuers on how to align measurement with investor needs. For more on this topic, see our recent study of 246 issuers’ corporate disclosures, “Corporate Reporting on the SDGs: Mapping a Sustainable Future”.

Fixed income to assume a place of prominence

Since the UN Global Compact launched its concept of ESG investing in 2004, equities have received the lion’s share of attention from investors. Yet, several speakers believe the tide is changing given growing market recognition that ESG issues present a material credit risk to both corporate and sovereign debt. Moreover, with debt issuance dwarfing equity issuance in the global marketplace, bonds are an increasingly important source of corporate finance. Credit investors therefore have a significant opportunity to exert meaningful influence over issuers’ ESG risk management and disclosure.

Issuer engagement is key

Tied to the above discussion of responsible investment in fixed income was the importance of issuer engagement. Niamh Whooley, ESG engagement analyst at PIMCO, commented that for many years, ESG investing has been predicated on excluding certain sectors and companies from a fund or portfolio. But by actively engaging with issuers willing to improve the sustainability of their business practices, bondholders can have a greater impact than through exclusions alone. It is here that the 17 UN SDGs (see Figure 2) can be a tool for dialogue: They can provide a common language and reporting framework for investors and businesses to accelerate focus, accountability and impact. For more on this topic, see “UN Sustainable Development Goals: Measuring Performance Through Impact”.

Five Takeaways from the London ESG Investor Summit 2019

The bottom line

What is abundantly clear is that ESG investing is not a fad. Governments and companies are devoted to advancing sustainable development, and the financial community has a critical role to play too. By allocating capital to best-in-class issuers and those committed to improving their ESG practices, investors can influence their behavior towards sustainability issues. This idea lies at the center of PIMCO’s ESG platform, which seeks to align investors’ financial and impact goals by combining ESG-focused portfolio construction with active engagement and transparent reporting.

For more information on our ESG platform, visit “ESG Investing In Fixed Income”.

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PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963), PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Deutschland GmbH Swedish Branch (SCRO Reg. No. 516410-9190) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Spanish Branch and Swedish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act, the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008 and the Swedish Financial Supervisory Authority (Finansinspektionen) in accordance with Chapter 25 Sections 12-14 of the Swedish Securities Markets Act, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser.

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