Robust reporting frameworks get to the heart of reputational and greenwashing risk, according to Nathalie Wallace, head of sustainable investing at Natixis Investment Managers.
In this episode of the Green Dream, the video series where ESG Clarity interviews key figureheads in the responsible investment world to get their views on the latest trends, news and movements in this evolving landscape, Wallace, talking to ESG Clarity’s global head of ESG insight Natalie Kenway in the London studio, said robust reporting frameworks at the corporate and product level are essential to reduce greenwash, showcase the “good managers” and communicate to clients what they are actually investing in.
Wallace also discusses the energy transition and the just transition, and why parent firm Mirova recently acquired SunFunder.
The full video interview is above, and the transcript is below.
NK: First of all, I wanted to talk to you about reporting frameworks and how can we ensure that they are robust for the industry. What does a robust reporting framework look like for you from a corporate level and at product level, too?
NW: It’s an excellent question. We get to the heart of the reputational and greenwashing risk here. So, investors as we are need robust reporting from corporates, and robust reporting means frameworks, regulation. We have a few frameworks emerging in the US, the International Sustainable Sustainability Standards Boards, as well as in Europe through corporate disclosure regulation around sustainability topics. It’s also emerging in Asia, especially in Singapore.
That’s essential for investors to actually make sound investment decisions based on audited standardardised sustainability measures that are directly reported by corporates. Today, we are actually relying on data providers to get that information so having that information directly from corporates is essential.
The second aspect of reporting is for end-clients. When an asset manager proposes a product that can be either to improve the ESG profile of a fund and manage ESG risks, or to deliver sustainability outcomes or impact, these have to be demonstrated and evidenced through rigorous reporting that supports the claims that the investment manager or portfolio manager is doing through the product. That’s essential.
We are seeing really good, rigorous frameworks, regulatory driven frameworks both in Europe, in the UK and globally, including in the US. And that I think is really going to help frame the industry, reduce greenwashing risks and really showcase what are the good managers and how they should actually communicate to clients on the claims around ESG, sustainability or impact that products are making.
NK: We look forward to closely following all of these regulatory frameworks that are coming out. There’s so much coming up in the next few months. I wanted to ask you about the energy transition. Obviously, we’re in the middle of an energy crisis at the moment, and the transition to renewables is essential for us to be on the path to net zero. What is the approach at Natixis?
NW: I’d like to come back to what are the key drivers of these energy transitions in the past, and I’m talking pre-Ukraine war. We had already three key drivers; consumer demand, technological transition and low-cost energy sources, as well as regulatory and government driven incentives.
The fourth driver that has happened since the war in Ukraine is energy independence that governments are looking to achieve.
It is different by country. We are seeing it in the UK, potentially France or Germany, in Europe especially. The short-term impact of that might be more GHG emissions given the access in the short-term to high emitting sources of energy.
That said, what we are seeing in energy independence is really driving the accelerated financing of renewable energy, not only to achieve the Paris Agreement objective of a low carbon economy but it’s also to provide cheap access to resources that is available at any time and not dependent upon other sovereign nations.
What we do at Natixis Investment Managers is really help our clients along that transition. We are active managers and so we tend to really understand investment trends for the next five to 10 years and help our clients position for those trends, as well as have clients positioned to contribute to those trends. Here we could offer low carbon investment products as well as investments into solutions, meaning renewable energy but also enablers or assets that are transitioning or contributing to that transition, as well as natural capital for carbon sinks and any other more advanced private equity, public equity solutions to really have an impact and drive that transition.
Lastly, I think the key element that investors need to take into account is the physical impact on their portfolio. How resilient are their portfolio for the physical impact of climate change?
Here we’re talking obviously about heatwaves and droughts. We saw this summer that the droughts in China actually had an impact on the supply chain of microchips going up the chain to consumers.
These are essential risks that investors need to take into consideration and that we do take into consideration in our portfolio construction.
NK: Moving from the energy transition to the just transition. How do you approach that and ensure that we are taking along the developing economies with us on this transition to net zero?
NW: This is a crucial question. Today, we have good government intention from most countries and the support that developed markets need to provide to emerging markets, which was one of the core themes at COP26 and is going to be a core theme and objective for COP27, is essential.
There are three ways to finance and channel that capital; through major government or development institutions, so more public money from developed markets to developing economies; blended finance where we as investors collaborate with these development institutions, and lastly, and we actually have this within the Natixis investment capabilities, is to invest in projects in emerging markets to deploy that capital into projects or companies that will help towards that just transition.
We have lately acquired SunFunder with our Mirova affiliates, which is deploying capabilities and actual solutions for renewable energy in Africa and Asia. These are the solution and the products that we are developing to help our clients on that journey.
NK: It’s interesting to see that you think it’s so important the business is willing to acquire and make sure that you have the capabilities there. That says a lot.
NW: That’s exactly right.