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Richard Newell

Director @ Global Fund Services
Asia Pacific writer and consultant on sustainable investing

Climate Change Governance Investment Stewardship Sustainability

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Richard is an advocate for greater funding of marine conservation, providing connectivity for sustainability entrepreneurs and investors in Asia Pacific. His writing reflects 30 years’ experience in emerging markets. In 2007, he set up and managed the Asian business of IPE International Publishers, which included a mainland China JV focused on the country’s developing pensions market. He joined AsianInvestor in Hong Kong in 2015, winning awards for his coverage of ESG. He now works as a consultant specialising in impact and sustainability investing.

Fighting the ESG pushback

The politicisation of climate-related investment, particularly among US pension funds, is at the core of the slump in support for ESG funds. This pushback is more pronounced in the US, where it has become a political hot potato in the fight against so-called ‘wokeness’. Some might see this as an inevitable consequence of the progress already made in embedding climate change policy into the corporate agenda over the last few years. But if the backlash continues to undermine investor confidence in the climate agenda, it could have disastrous consequences for efforts to reach net zero and the whole energy transition. The ESG 'industry' has a real fight on its hands. ESG has become weaponised, with some US states legislating against its adoption within an investment framework and casting doubt on its efficacy as an investment strategy. Republican politicians are ramping up their anti-ESG lobbying. It is estimated that at least 165 anti-ESG bills were introduced in 2023. Anti-ESG campaigners have created a mood of uncertainty among investors increasingly unsure whether climate-thematic funds can deliver on their promise. Sustainability proponents must fight this with renewed vigour, or it will have a massive negative impact on the global economy. Above all, opposing ESG activity runs counter to the desire of companies and their investors to actively and effectively managing climate-related risks, which for an investor is a crucial part of their fiduciary duty.The ESG 'industry' has not helped itself by allowing a proliferation of funds, many of which do not do justice to the label. Pressure on fund managers has intensified around the world, reflecting concerns that for too many funds, an ESG badge is just window dressing. In 2023, Australia’s funds regulator pursued several high-profile enforcement actions for perceived greenwashing, including against Vanguard, alleging misleading claims about ESG exclusionary screens that were applied to its investments.As a result of all this negative coverage, ESG fund flows appear to have hit a wall. According to Morningstar data, investors have pulled more than $14 billion from US sustainable funds in the past year.The reaction of the very largest players has been to retreat. In December 2023, Vanguard made the decision to pull out of the Net Zero Asset Managers (NZAM) initiative, launched in late 2020 to encourage fund firms to reach net zero emission targets by 2050.Potentially worse still, as much as $20 trillion of assets have been removed from the global decarbonisation drive by another three of the world’s largest asset managers, BlackRock, State Street Global Advisors (SSGA) and JP Morgan Asset Management (JPAM) reneging on their sustainability promises. Following Vanguard's retreat, in mid-February, SSGA and JPAM announced their withdrawal from the Climate Action 100+ initiative. BlackRock also shifted its association with the CA100+ away from its US arm in favour of its international division.This creates a huge challenge for investors and makes it more difficult to make progress on decarbonisation. Climate change poses the biggest long-term threat to the global economy. If no mitigating action is taken, global temperatures could rise by more than 3°C and the world economy could shrink by 18% in the next 30 years. Economies in Asia would be hardest hit, with China at risk of losing nearly 24% of its GDP in a severe scenario, while the world’s biggest economy, the US, stands to lose close to 10%, and Europe almost 11%In Europe and Asia Pacific, at least the mood is not as dark as in the US. There is a growing convergence on ESG regulation and product development. Regulations such as the EU’s Corporate Sustainability Reporting Directive are driving global institutions to reconfigure their operations and minimise their climate commitment liabilities.This creates several layers of complication for globally invested institutions, having to meet reporting requirements in many different jurisdictions, something the big US institutions are also kicking back against. For ESG fund promoters, the pushback and negative headlines have resulted in a greater focus on ensuring that investment strategies and processes match the fund label. Providers of capital, in both wholesale and institutional channels, are now much more focused on this due diligence. For their part, investors are looking far more closely at how ESG funds align with their own interests. There are positive aspects to all this, in keeping ESG funds honest, but the concern is that the anti-ESG lobbying tips over into a major landslip on the drive to decarbonise.

0 Likes | 0 Comments 0 Comments 29/02/2024

Richard Newell

Asset owners must keep up the pressure on governance

The need for meaningful and sustainable change by the most powerful global public companies is coming into ever sharper focus. Corporate governance is supposed to be the area where these changes are ensured, keeping companies honest. However, analysis of fund manager activity in this area suggests that fund management groups are still not doing all they can.Evidence of real-world outcomes that improve stakeholders' lives is considered the most important component of a corporate engagement strategy and Asian institutions are increasingly convinced that meaningful change is integral to active ownership. That’s according to the annual survey of institutional investor priorities, carried out by fund manager Schroders.The world’s largest fund managers have been under the spotlight for some years now, so their stewardship activities are well documented. For example, during the 2021-22 proxy year, BlackRock did not support 2,529 directors at 1,521 companies globally, over concerns about independence, with a high concentration of such voting in the APAC region.Their assessment considered a number of factors, including the balance of independent and non-independent directors and the tenure of directors and the overall board on average.“We look for boards to have a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to bring an objective view to and influence on board decisions,” said the firm in a statement.However, that stance is not reflected in independent data. A report on voting activity by third-party fund managers from ShareAction suggests that the pace of progress has been slowing.According to the report on asset manager voting trends, the world’s largest asset managers are backing fewer shareholder resolutions on environmental and social issues.“Asset managers across the board are hesitant to back action-oriented resolutions, which would have the most transformative impact on environmental and social issues,” said the report.The report ranked 68 global asset managers according to how many shareholder-sponsored resolutions each manager voted for, as a percentage of the total number of resolutions the manager was able to vote on.Significantly, the report said an additional 49 (out of 252) shareholder resolutions would have received majority support if BlackRock, Vanguard and State Street Global Advisors had voted in favour of them.BNP Paribas Asset Management’s head of stewardship for Asia Pacific, Jane Ho refutes the idea that corporate governance activity is slowing. Indeed, “there is a noticeable step up in stewardship activities in Asia,” she said.Jane Moir at Asian Corporate Governance Association says Asia does not see anything like the scale of activity compared to western markets, reflecting the logistical and regulatory hurdles in bringing corporate actions. These include concerns over concert party rules, particularly in markets such as Japan.However, ACGA is seeing more resolutions in Japan and Korea, and more investor support for them, said Moir.“The JPower resolution last year gained a respectful vote and more recently, the recent proposals at Fujitec suggests investors are more willing to back proposals which can have a significant outcome.”To ensure they really are stepping their stewardship, ShareAction said that asset owners should ask external fund managers to disclose data on follow-up engagement for all instances where they have opposed management on ESG issues."They should also consider engaging collaboratively with other asset owners who share their asset manager."BNP Paribas AM's Ho added that asset owners are indeed increasingly focused on accountability and action with external managers. Many also publish their own stewardship or voting reports."We see this reflected also in the selection process of asset owners, with the increase in RFP questions on ESG and stewardship to the due diligence of these activities. Clients are looking for increased reporting and examples," said Ho.She is also encouraged by the greater collaboration between asset owners in Asia on governance and stewardship."Asset owners are increasingly active members of collaborative initiatives such as the Asia Investor Group on Climate Change (AIGCC) and Climate Action 100+, working alongside industry peers on stewardship."Japan’s Government Pension Investment Fund (GPIF) has taken an interesting approach to ensuring its active ownership achieves its objectives. GPIF surveys listed companies in order to evaluate the stewardship activities carried out by GPIF’s external asset managers.The main objective is to ascertain the actual status of purposeful and constructive dialogue between companies and asset managers.Simply taking the approach of engaging with their asset managers could result in one-way information gathering and lacks objectivity, said GPIF president Masataka Miyazono, in its latest stewardship report, published in May.“Therefore, we have made it a purpose of this survey to gather information from the other side, with a focus on how portfolio companies view asset managers’ engagement activities.”The results of this survey show that there has been progress in dialogue on corporate philosophy and long-term vision and that the number of companies that have endorsed the TaskForce for Climate-related Financial Discloure (TCFD) and disclosed non-financial information, including information in line with the TCFD has significantly increased in the past year.The number of companies that make voluntary disclosure of non-financial information including ESG has increased significantly in the GPIF survey, reaching 85%. The number of companies that prepare integrated reports and disclose information in line with the TCFD has also grown considerably. Inparticular, the number of companies that disclose information in line with the TCFD has increased by more than 100 from 139 in the previous survey to 249.

0 Likes | 0 Comments 0 Comments 13/09/2023

Richard Newell

Overcoming the challenge of incomplete data

Global businesses are actively reporting on carbon emissions and allocating substantial resources to meet their climate obligations, or at least they are appearing to. The reliance on outsourced decarbonisation consultants raises doubts about their true impact.For smaller firms, it's a bit of a balancing act between doing some reporting or none at all. Where export is a major component of their business, reducing carbon emissions is important in gaining an advantage, as the global market becomes increasingly low-carbon focused. It can also reduce costs and increase access to finance and insurance options.There is one challenge all companies share and that is overcoming the limitations of available data. When the quality of reporting can only be as good as the data allows, it brings reputational risk into play. As a result, one common feature of climate action reports is the way a company will qualify its emissions statements with a disclaimer that typically reads:“Due to our reliance on external data, and external data providers’ controls in producing the data, there are risks regarding the lack of completeness of data, unverified data sources, and complexity and judgement involved when the emissions data is sourced.”In other words, this information is incomplete and therefore unreliable. The investor's challenge Investors have their own concerns about data quality and how to meaningfully reflect carbon footprinting in their annual reports. Just recently, the $330 billion US pension fund Calstrs delayed publication of its annual carbon footprint report after discovering significant data issues.The emissions data gap is a massive problem, at a time when reporting on it is increasingly mandatory. How to accurately measure it when approximately 80% of listed companies around the world — that’s 50,000 companies — don’t report anything on emissions?The need to account for Scope 3 greenhouse gas emissions along supply chains and product portfolios presents the greatest challenge. Scope 3 emissions are the hardest to identify, and can be challenging to measure accurately. But since most of a business’s emissions will be scope 3, measuring and reducing these emissions is crucial to sustainability success. It can be difficult to measure, though. Investors and data aggregators are reliant on a company’s own materiality assessment, in many cases. While Scope 1 and 2 data are arguably robust enough to enable accurate emissions mapping, that is not the case for Scope 3, where it is estimated that 50% of major listed companies are under-reporting. Despite the limitations of the reporting and the resulting disclaimers that feature in most studies, Scope 3 reporting is considered essential. Businesses and their investors would be mistaken for ignoring it. Scope 3 emissions can represent a company or a sector’s most material impact on climate change. More positively, companies making an effort to reduce Scope 3 emissions – for example in business travel or supply chain – can drive large-scale change across business and society.The advice to businesses looking to measure their carbon impact is to focus on key areas of materiality. These range from packaging to biodiversity to modern slavery and emissions. Consider what is the most material element your business can tackle.Technology offers an opportunityThere is hope for a step change in the quality of emissions data, if artificial intelligence can be utilised in the aggregation and interpretation process. AI tools can help increase the granularity of available data, as well as enhancing the predictive analysis of the climate scenarios used to assess future climate risks.Machine learning, among other AI applications, is expected to be the key to improving the carbon reporting capability of companies and their investors. Advancements in AI are already playing a pivotal role in enhancing ESG management, enabling companies to comply with looming ESG regulations.The technology is also expected to help business and finance understand how future carbon constraints will translate to carbon transition risk. For investors, this will taking their financial data and propagating future climate scenarios; mapping different outcomes, for a 1.5-degree world, or 2 degrees, or 4. That will allow them to take action to protect their portfolio

0 Likes | 0 Comments 0 Comments 10/07/2024

Richard Newell

Clean energy a focus for new UK sovereign fund

In recent days, the new UK government has been in conference with many of the world’s most influential and visionary businesses and investors. The so-called International Investment Summit produced a number of new policy initiatives aimed at rejuvenating an economy beset by regional inequality and the fallout from Brexit. The stimulus is expected to focus on key climate-related areas such as clean energy and carbon capture. Two new carbon capture sites in the north of England and carbon capture, utilisation and storage-enabled hydrogen projects will create 4,000 new jobs, helping remove over 8.5 million tons of carbon emissions each year, according to government figures. Notably, as the International Investment Summit concluded, the government announced the formation of the nation’s first sovereign investment fund, to be called the National Wealth Fund (NWF).Britain’s Chancellor of the Exchequer Rachel Reeves said the NWF will facilitate tens of billions of pounds of private investment for the UK’s clean energy and growth industries, including green hydrogen, carbon capture, and gigafactories.The NWF will have a total of £27.8 billion at launch, with the government bringing forward legislation to give the fund a broader mandate than just infrastructure.Australian and British pension funds want the UK's National Wealth Fund to focus on higher risk net-zero industries, where it can play a valuable role bridging gaps in capital markets.IFM Investors has an MOU with the UK government, pledging to invest £10 billion into the UK by 2027. Gregg McClymont, director at IFM said there are a number of steps to unlocking this investment: “A pre-requisite is that the UK government should account for infrastructure assets more like a long-term investor and less like a commercial bank, holding equity as loan collateral to be sold in a fire sale.”IFM Investors, with US$150 billion in funds under management on behalf of 17 Australian industry super funds, has prepared a policy blueprint in association with UK pension funds, to help unlock investment and fast-track clean power in particular.The paper contains targeted policy recommendations to mobilise pension capital and help deliver on the government’s priorities of doubling onshore wind, tripling solar power and quadrupling offshore wind over the next six years.It urges the National Wealth Fund to support “the commercial development of higher risk net zero industries where it can play a valuable role bridging gaps in capital markets.”Kristian Fok, CEO at Cbus Super, one of the parties to this collaborative paper, said, “By setting clear objectives and streamlining processes, there’s a compelling opportunity for long-term investors to partner with the energy sector and accelerate the deployment of renewable energy infrastructure, with the aim of securing long-term risk adjusted returns for members.”The paper’s other recommendations include a streamlining of the permit process for repowering existing onshore wind sites, support for hybrid renewable energy systems and a prioritising the development of business models and markets for hydrogen and e-fuels.The sovereign fund should also accelerate the delivery of energy storage solutions, “in particular long duration energy storage systems, through the development of revenue certainty mechanisms”, said the paper. The new sovereign wealth fund initiative ties in with UK government unveiling commitments from the private sector to invest more than £50 billion into the economy, across artificial intelligence, life sciences and infrastructure. That sum includes a £20 billion investment from Australia’s Macquarie group that will include an electric car-charging network and offshore wind projects.Deanne Stewart, CEO at Aware Super said, “The enormous scale of the energy transition and need for private sector capital should enable appropriate opportunities for generating strong, risk-adjusted returns for their investment portfolios.”

0 Likes | 0 Comments 0 Comments 16/10/2024

Richard Newell

How to build a broad momentum around decarbonisation efforts

Richard Newell assesses the challenge for asset owners in achieving fuller and more comprehensive decarbonisation.With Asia accounting for more than half of global fossil fuel consumption, it is vitally important that Asia-Pacific's investment community do their part in helping to decarbonise the region.The challenge, as always, is how to match investors’ commitment to alternative energy with suitable assets and deals. Solutions ranging from geothermal energy to carbon capture and storage, or the use of more sustainable materials have drawn large amounts of funding and, if deployed widely, could advance decarbonisation pathways.Ongoing government support is important in sustaining progress. There are signs that with the right political will, progress can be made. In Australia, there has been a broad call from the investment sector for the government to press ahead with developing a sustainable finance strategy that would enable private finance to direct capital to renewables at scale.Government spending is playing a key role in the growth of clean energy investment and expanding clean technology supply chains. The amount of money allocated by governments to support clean energy investment since 2020 has risen to US$1.34 trillion, according to the latest update of the International Energy Agency’s government energy spending tracker.However, annual investments need to at least quadruple to remain on track to achieve the 1.5°C scenario in IRENA’s World Energy Transitions Outlook 2023. Investments are also not flowing at the pace or scale needed to accelerate progress towards universal energy access.Renewable energy is considered a useful diversifier for institutional portfolios, but according to IRENA’s research, institutional investors have so far not taken advantage of the opportunities presented. Fewer than one-fifth of investors have made any renewable energy investments, while only about 1.5% have invested directly in renewable energy projects.For further expansion to occur, IRENA reports that continuous effort needs to be put into the further harmonisation of the green definition and certifications, collaboration among public and private stakeholders in the issuance process, and continuous development of a pipeline of bankable and de-risked renewable energy assets.New Zealand Super’s CEO Matt Whineray questioned whether the efforts of asset owners to decarbonise their portfolios are sufficient to drive the changes needed on a global scale.“While it reduces our exposure to this risk – it won’t do much to change the real-world outcome. We need new capital to flow to fund the transition, and we need governments and regulators to act as well.”The politics of climate change, both domestically and internationally, has been characterised by degrees of chaos and disagreement. But the transition is gaining traction, to judge from the fact that the social cost is increasingly being borne by those responsible.The most active investors in the low carbon space in Asia Pacific see governments increasingly willing to introduce carbon pricing mechanisms to penalise high emitters and incentivise investments in climate solutions.Whineray urged investors to step up their engagement with policymakers and regulators “to set the vision, build the structures and demand the disclosures that will help the rest of us to compete within a system that is not working against our long-term objectives.”Such actions are necessary, he said, to eradicate the “particularly insidious activity” whereby companies lobby for exemptions to the rules rather than look for new ways of working that will align them with those long-term objectives.Initiatives such as the Asia Utilities Engagement Program promoted by the Asia Investor Group on Climate Change aim to accelerate the decarbonisation of the region’s power sector through collective investor engagement.Improvements in data quality and sustainable finance indicators are helping that process. The growth of the Partnership for Carbon Accounting Financials is another example of how frameworks are in place for finance emissions reporting.The other challenge when it comes to raising climate-related finance in Asia is directing capital evenly. Private capital tends to flow to countries with lower real or perceived risks. When capital does flow to countries at the margins, it generally does so at a much higher cost.This means the lowest income populations end up paying the most for energy, which is universally recognised as essential for alleviating poverty and promoting social advancement. The danger is that the divide between private and public financing only widens the disparity between developed and frontier markets.

0 Likes | 0 Comments 0 Comments 23/08/2023

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