In part two of this Green Dream video interview, Jenn-Hui Tan, Fidelity’s global head of stewardship and sustainable investing, discusses the firm’s approach to measuring natural capital and investing in the just transition, while explaining why he thinks Asia is learning lessons from the mistakes made on sustainability in Europe.
Part one of this video interview is here.
Watch the full video interview above and read the transcript below.
NK: Hello and welcome back to this video interview with Jenn-Hui Tan, Fidelity’s global head of stewardship and sustainable investing at Fidelity International. Hi Jenn, thanks for being here.
JHT: Thank you, Natalie.
NK: You’ve relocated from Singapore to the UK. Could you talk about how engagement is different perhaps in Asia compared to the UK in Europe?
JHT: I want to dispel one quick myth, which is that Asia is behind in some way in the ESG journey. Asia is benefitting from something we call the second mover advantage, which is that they can see how the practice has taken shape and developed here and they’re accelerating their development because they can see the things that they should be doing and the rabbit holes that that they should be avoiding.
In terms of the engagement with the companies. I would say most companies now that are large and have international investment are very attuned and aware of the ESG agenda and the need to have their own sustainability proposition for their business. But there are other businesses where the initial engagement sessions tend to be more educational in nature. You tend to need to step them through the ‘why’ of ESG. Why are investors interested? How can this benefit them? What are their peers doing? And how can they gain competitive advantage as a result of applying this thoughtfully in their business? And then you can start to propose positive things that they can implement.
NK: It’s interesting that you say that Asis is the second mover as we have people criticising Europe now for falling behind, perhaps. It’s interesting to see how that has panned out. You mentioned in the previous video that one of the focuses for engagement is natural capital. Can you explain a bit more on what you’re doing around that? It can be quite difficult for companies to measure that.
JHT: Yes. Measurement of biodiversity loss is the biggest hole at the moment. We think about it in a top-down way and a bottom-up way. The top-down way is what are the ways in which you can correctly measure the biodiversity loss that’s happening? There are lots of different metrics that are out there, lots of different work, [such as] the ISSB [International Sustainability Standards Board], the TNFD [Taskforce for Nature-related Financial Disclosures] and so on, and we are contributing and part of that.
At the same time, we want to make better assessments of the biodiversity impacts and dependencies that affect different companies that we invest in and come up with a better view of what best practices around biodiversity preservation and ultimately nature positive ambitions could look like. And finally, we want to look at solution providers so there has been a lot of talk about the climate nature nexus.
Climate change is the second biggest driver of biodiversity loss, but biodiversity loss, double deforestation is also significantly impacting our ability to remove carbon from the atmosphere in a natural way. And we think a lot about how do we apply the learnings that we’ve had from climate change and take that into the field of biodiversity. And then finally, from a bottom-up perspective, we want to be making assessments about how we can manage within our own portfolios the risks that our companies face and how can we construct engagements that address some of the causes of biodiversity loss.
At the end of last year, we published our deforestation framework and that sets out our approach to identifying the major sources of risk in our portfolio around deforestation and what we want to do to move companies to addressing this key risk. Our proposal is to apply what we did for climate change. We talked about that at the last interview of our climate voting policy.
We are applying that same roadmap. This year we are writing to companies, explaining the importance of deforestation, risk mitigation, explaining what we think the best practices look like. And from next year onwards, we will begin to vote on this issue.
NK: Okay, thanks. And super interesting. And moving from climate to social, the just transition is another big focus as well. Can you talk us through how you approach that with companies?
JHT: At the highest level, a lot of people think ‘just transition’ means a transition that doesn’t leave anyone behind. And I think that’s right conceptually. But I think when we talk about how we apply that in practice, I think we need to get a little bit more granular. We’ve been doing a lot of work with the Impact Investing Institute.
The Just Transition [Financial] Challenge that it has set the industry and we’ve thought about the three pillars it proposed as a way of measuring and implementing just transition. So obviously you have the environmental action that underpins the transition. You have considerations of socio-economic equity. So what are the impacts of that available action on the way that it affects the broader society?
And then finally, you have community engagement. We now recognise that for a transition to be effective, you need to have elements of all three of these different pillars. Let me give you a practical example. Let’s take something like thermal coal. Everyone would agree that if you want to move to a low-carbon world, if you want to achieve the reduction we’re talking about, we have to find a way to take out thermal coal from our energy grid and we have to encourage the current uses of thermal coal for energy production to move to alternative renewable sources of power generation.
But then if you look at a country like India, which is coping with huge demands for it for energy right now, driven by population growth. It is now in the most populous country in the world and also driven by economic growth. Now if you look at the barriers that stop India from transitioning its energy grid from thermal coal to renewable sources, a lot of those barriers are socio economic in nature and they are ultimately political in nature.
And so there’s a huge opportunity. If you take a just transition lens and you apply that to your engagement with companies, you are better able to understand some of the barriers that they face in implementing the transition. You’re better able to come up with a solution that hopefully balances these different considerations that these companies face operating in these emerging markets.
NK: Thank you for explaining that. I’ve learned a lot there about the environment as well. Okay. Something we always end our video interviews on is to ask you how you contribute personally to a low carbon world, the sustainable food or snack or activity that you may participate in.
JHT: If I can just start with the big picture, a lot of the work that the sustainability movement has been trying to address is around the supply side of things, because that typically engages big companies and finance to use the influence on those companies. Actually a lot more I think needs than should be done on the demand side. So what are the ways in which we are shaping consumer demand for meat preferences or single-use plastics or other things? And you have to balance these two elements if you’re going to arrive at a genuinely sustainable solution.
If I think about all the things that we can do, I don’t think it’s particularly one thing. There’s lots of different micro adjustments you can make to try to live in a more sustainable way. Our next car purchase will be an electric vehicle of some sort of description. We are trying to consume less meat as a household. We’re trying to eliminate single-use plastics, so bring your own coffee cup, things like that.
But actually, as you do that, you realise that taking out some of these things is not that easy. You know, there’s a lot of entrenched factors that have driven the use of these different elements, and it will require a more concerted change in order to be able to genuinely reduce the impact on the environment.
NK: Well, thank you very much for sharing your insights and tips with us. Very good to chat with you. Thank you.
JHT: Thank you, Natalie.