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Webinar

The road to net zero

Over the past year, a number of ICMIF members have announced net zero commitments to transition their investment portfolios and insurance operations to become carbon neutral businesses over the next 30 years. This includes seven members joining the UN-convened Net Zero Asset Owner Alliance (NZ AOA): a group of 71 of the world’s largest investors that have committed to fight climate change by reducing carbon emissions in their portfolio – worth USD 10.4 trillion in assets under management – to net zero by 2050. This webinar hears from two ICMIF members that are part of the Alliance who share insights and learnings to help other mutual/cooperative insurers in their own journey to transition to net zero.

Speakers:

  • Emilie Westholm, Head of Responsible Investments and Corporate Governance, Folksam (Sweden)
  • Chad Park, Vice President, Sustainability & Citizenship, Co-operators (Canada)

Shaun Tarbuck:

Hello everybody. My name’s Shaun Tarbuck, I’m the CEO of ICMIF. And welcome to this third in the series of webinars as we lead up to our conference in October in Rome, our centenary conference that is.

This is one of the hot topics that we will be discussing there. And hopefully when you listen to Emilie and Chad, it’ll motivate you to want to know more if you don’t already. But the road to net zero is definitely a path down which many of our members are going now. We survey our members every year, for the last three years as to who’s doing what and where. And certainly the year before we had about three members that had made net zero commitments. Now this year we have 13. So there’s a definite momentum shift for our members to do more in this area, as there is within the whole industry.

We have today got two excellent panelists in Emilie Westholm, who’s head of responsible investments and corporate governance, and Chad Park, who is vice president for sustainability and citizenships. And both of them have got slightly different presentations, but hopefully you once you’ve hear from both of them you’ll be a lot more wiser and knowledgeable about their journeys to the net zero.

Whilst they both look extremely young, certainly a lot younger than I do. They both have more than 20 years experience in this area in terms of dealing with sustainability and responsible investing. So lots of experience to draw upon, and both of them are also leading in many of the areas for the whole industry around the United Nations Environment Program, Chad sits on the board of the UNEP, and Emilie and her team also sit on the Net Zero Asset Owner Alliance principle group.

So there’s a lot of experience that we have there that we’re drawing upon. But today is about helping you along your journey to net zero, because we do believe that is the right way for ICMIF members and mutuality generally to be headed.

I’m going to hand over to Emilie first to talk about the Folksam journey and then Chad will follow on from that. And if you need to put any questions, please do so in the chat box there. And we’ll get to those at the end where we have a little bit of a discussion. Over to you, Emilie.

Emilie Westholm:

Thank you. And hi everyone. It’s a pleasure to be here today. Thanks to Shaun and also to the rest of the ICMIF team for making this possible.

My name is Emilie Westholm and I’m head of responsible investments and corporate governances at Folksam. I haven’t worked with responsible investments for 20 years, but 15 years ago I started working at Folksam. And before that I was a journalist.

Most of you have not heard about Folksam. I would just like to mention a few short facts about us. So this is not the Folksam group. It was one though, the Folksam group. Folksam was founded more than a hundred years ago and it was a response to the need for poor people to be able to afford insurance. And today Folksam is one of Sweden’s largest insurance and pension companies. We assure every other Swede. And as you know Folksam is also a mutual company. Our customers are also our owners. And over to our offer. And we have both general insurances, such as housing, car and pension and life insurance. And we have a vision that our customers should feel secure in a sustainable world. This is something that runs through everything we do.

We have around 550 billion Swedish crowns in assets under management. That’s around 55 billion euros. And these assets are divided in different asset classes. As you see from the picture, we have around half of the assets in fixed income, almost 40% in equities, 10% is invested in real estate. And what is left is invested in what we call special investments, you can also call it alternatives. And this is basically the category where we include all the unlisted investments and different kind of fund investments.

For example, we invested in Volvo cars before it was listed on the stock exchange. And we’re also invested in North Fault to mention another example. And in our fixed income portfolio, we have a focus on green bonds and have currently around 3 billion euros invested in mostly Swedish green bonds from municipalities. But we also have investments in different kinds of sustainable bonds from, for example, the World Bank. And last year we made investments in COVID 19 bonds as well to help remedy the effects of the pandemic.

So why should an insurance and pension company in Sweden care about climate change? I think these pictures probably give you enough answer. These pictures show the Swedish town Gävle and were taken after a heavy rain in the end of the summer last year. And still these pictures only represent one small part of all the consequences that the world is facing because of a warming climate. For our insurance business we can see the effect climate change has on our customers houses, and for our investments we’ve started to see the effect on the companies in our portfolio.

At Folksam we have a long tradition of integrated sustainability to our business. We have for example, traffic safety researchers in house to perform tests to see which cars have the best safety systems, but also which cars are least harmful for the environment in climate. We also have specific requirements on the contractors who repair damaged cars or rebuild houses. And this is also something that my colleagues have done for many, many years.

And when it comes to our investments, the first exclusions ever decided on by the boards in 2001, and we also had different engagement criteria back then. And since 2001, these criteria have also been adjusted from time to time to be in line with new international conventions and guiding principles. And in 2006, Folksam was also one of the investors in the group that founded the PRI, Principles for Responsible Investments.

And when it comes to climate, it’s not a new question for us. Already in 2002 Folksam published the first report looking at the listed companies work on climate, the Swedish listed companies, I should say. And basically what my coworkers and some before me made were lists of the largest polluters, and also what these companies did to try to decrease the emissions.

Later on in 2008, when I had started at Folksam, and we saw Al Gore for example, traveling around the world with his film, we even started thinking that, “Well, people seem to have started to care about the climate now, so let’s focus on other issues.” And so we did for a while, and perhaps we were a bit too optimistic. I mean, obviously we were, you can see that now.

But can I also, when talking about different criteria, just allow myself a short reflection on climate as a responsible investment criteria as such. If we go back to the beginning of responsible investments or ethical investments, as it was usually called a few years back, we start it by excluding different sectors that are bad. And let’s say tobacco, sometimes alcohol, controversial weapons. We did this, not because we thought it would end the production of cigarettes or wine or cluster munitions. We did it because our customers didn’t want their pensions or savings in these companies.

Given this history, this tradition of responsible investments, sometimes I think that we tend to transfer this way of thinking into the challenges of climate change. Because you don’t want your money in a company that’s bad, and not in a company that’s bad for the climate, but at the same time, you really want to stop climate change. And can you be sure that not investing in certain companies would help that cause? Because there are differences between the old traditional exclusion areas. First, compared to other issues, climate change is not values based. It’s a fact, it’s not good for anyone. It’s bad for everyone. And second, all companies affect the climate in some way. And every company is also affected by climate change. It’s not only one or two specific sectors.

Also how do we define net zero or fossil free? Sometimes you see investors excluding oil and gas or coal. Like, what about the companies depending on these energy sources and the ones buying products from these companies in their turn? It’s really a never ending story when you start thinking about it. And last, by excluding companies because of their climate status of today, you also risk to miss the potential and the ambition of the companies. And we miss the chance to engage with them, to make them go in the right direction.

And this reasoning, and the tradition of our work with responsible mass investments, it all led us to the decision to be part of the new Alliance back in 2019, the Net Zero Asset Owner Alliance. And it was launched at the climate summit in New York in September, 2019. And with other founding asset owners, Allianz from Germany, CDPQ from Canada, Caisse des Dépôts from France, PensionDanmark from Denmark and Swiss Re from Switzerland. And today we’re over 70 asset owners in total who work together in this joint commitment with the assistance from both the PRI UNFI, and as well with WWF as a strategic partner. So yeah, there we are.

So on the commitment… In short I think you perhaps already know about this, but in short it’s to transition our portfolios to have net zero greenhouse gas emissions by 2050, and this should be in line with the Paris Agreement of course. But also depending on what the science tells us, this commitment can also be adjusted in the future if we learn more. We’ve also committed to report regularly and to set intermediate targets every five years. But the most important part for us as Folksam I think is this part about the real economy. That our commitment says to reach net zero in our portfolios, but to emphasize the emissions reduction in the real economy. There’s no point in having a net zero portfolio in 2050 if it doesn’t really reflect the emissions in the world. And also of course we could never do all of this by ourselves. So this commitment is also made with the expectation that all the governments will live up to their own commitments, and what they have agreed according to the Paris Agreements.

2050 that’s far, far away in time. And sometimes we get questions about this, that it’s too far away. So would it be better to start working earlier than that, to have a target earlier than 2050? But for us, this doesn’t mean, of course, we haven’t started the work already. So in the Alliance, what we created and during the first year and agreed on was this target setting protocol to use when we set our own individual asset owner targets to 2025. So this is a kind of formal guide for all asset donors to follow when we set our own five year targets. And I should also mention that this protocol has been updated and slightly change recently, but since this is the version we used at Folksam when we set our targets last year, I thought I would show this one to you.

Depending on what kind of asset owner you are, what kind of holdings you have and where you’re in the process of integrating climate in your investments, different asset owners have chosen different targets. And as you see the area in green, the left corner, the engagement targets, it’s the only mandatory area that you would have to set a target for.

We also have sector targets, it might be more relevant for your portfolio if you hold large investments in greenhouse gas heavy sectors, such as oil and gas, utilities, steel and transports. And to the left, we have the more basic traditional, perhaps, emission targets for the portfolio. And the protocol has set the reduction targets to be between 16 and 29% to 2025 with a base year at 2019.

There’s also work going on how to include other asset classes, except the listed equity in corporate bonds in real estate, but that’s work in progress. And last to the right there’s the financing transition targets, which is to report on climate positive investments, as well as to contribute to enlarging the low carbon investment universe in different ways.

And finally, as you see the square in the middle, the real world impact as I mentioned before. And for Folksam we’ve set an emissions reduction target of 29%, we’ve also set specific engagement targets. We already have some exclusion criteria related to climate. For example, we do not invest in mining companies with more than 5% of their revenues from coal, and also companies with more than 10% of their revenue from oil sands. And the reason for these exclusions is that we see there’s a high risk with having holdings in these kind of companies.

But when it comes to engagement, I’m going to show you also the engagement targets that we’ve set. So what we’ve done is that we’ve identified the largest emitters in our portfolio and the companies that are not yet part of any other investor engagement initiatives, such as Climate Action 100+ for example.

So the companies that are not yet on an initiative, we divided them into four different categories. So category D that’s really the lowest hanging fruit. And the least that we can expect from a company is that they report on their emissions. And of the roughly 80 companies that we have identified, all of the companies so far report on their emissions. So next, what we want to see from the companies is to set a target related to climate. The next step of the ladder is of course, to set a science based target. And the last step is to have the science based target get approved by SBTI or some other similar initiative.

And you can also see that the more specific targets that we’ve set in each category on how many companies that would need to move up this stair for us to reach our targets. And the logic behind the targets is of course that by reaching these targets we would in time see both a decrease in our portfolio’s carbon footprint, but as well in the real world, as these companies would reach their targets in time.

And also, I would say that our vision is that we in 2050 could look back at our current portfolio and see that the companies we hold today have made this journey towards net zero. And that we in theory could have the same holdings in 2050 as of today. And that we would still have net zero emissions portfolio. This way we would really have contributed to decarbonize the world, as it would reflect the real world, our portfolio’s holdings.

Before I stop, I’d just like to mention two, a bit more recent examples of how we try to work to live our vision of contributing to a sustainable world, as well as contributing to real world impact. You might already know that one of the highest emitting sectors is the steel sector. And the process of making steel demands huge amounts of energy. And until just a few years ago the world didn’t know any other alternative than using fossil fuels.

The Swedish steel company SSAB has made it possible to produce steel with green hydrogen, that will not admit anything but water vapor. So in just a few years, in 2026, SSAB… They’re planning to have the production of fossil free steel up and running. They’ve already started to deliver some of it to strategic partners such as Volvo, as you see. And Volvo has also shown the world their first fossil free steel vehicle half a year ago.

And as an investor interested in climate friendly innovations and solution, the investment in a company like SSAB would for us be perfect. But if we would only look at the carbon footprint of our portfolios at this moment, an increased investment in SSAB would mean an increased carbon footprint of the portfolio. So this is why the long term focus and the real world impact strategy is so important.

If you only focus on the portfolio’s carbon footprint here and now, and compare it to last year’s carbon footprint, you really end up missing all these kinds of investments. So we’ve been a shareholder in SSAB for a long time, but a year ago we saw the possibility to increase our holdings in this company. And we see that this is in line with our climate commitment, and we believe it’s a good investment. So since the last summer Folksam is one of the largest investors in SSAB, and we’re also represented in the nomination committee of the company.

And to show you just one more example, let’s see. Just to show you the importance also of value chains, as well as the importance of the finance sector. It’s an example of our engagement with HSBC. As you know, there’s a lot of talk about fossil free portfolios and investments, but in reality, a divestment, it really only means that the shares change owners and that they might end up with an owner less responsible. But fossil free lending has a much larger potential to make a real change. If a bank say no, or decide that it should be more expensive to loan money to finance fossil projects than to finance green projects, given all the risk the fossil industries is facing, this could definitely incentivize more companies to transition to greener alternatives. And as a shareholder in many banks Folksam has worked together with the British NGO Share Action and a group of other investors who engage with banks on climate.

And last year before the AGM of HSBC, we filed a resolution to the AGM where we asked the bank to set net zero targets, to phase out lending to coal, among other climate related asks. And we also initiated an engagement with HSBC, with different meetings between the bank and the investors and Share Action on several occasions. And eventually HSBC asked us to withdraw our resolution and to instead… They asked us to stand behind their climate resolution. And since the management resolution in most parts said exactly what we had asked for the group decided to withdraw and to support the HSBC management resolution, which actually got almost 100% of the votes at the AGM in the end. So it was a great success.

Of course, we still have dialogue with the HSBC, also to make sure that they continue the work. Because there’s always more work to be done. But you can also see that the HSBC CEO said to the media that he appreciated the dialogue and this unique result.

I think also that this is a great example on how we all need to realize that solving climate change, climate challenge, it’s not something that anyone could do by themselves. So we all need to work together in as many ways as possible. And with that, I would like to say, thank you. And hand over back to you, Shaun. Thanks again for inviting me.

Shaun Tarbuck:

Thank you, Emilie. That’s very interesting and certainly we’re starting to get a few questions coming through on that. So we’ll pick those up after Chad, if that’s okay. But I’ll turn straight over to you Chad, to talk about the Co-operators journey to net zero.

Chad Park:

Okay. Thanks, Shaun. And that was a great overview Emilie, thank you for that. I learned a lot as well.

I’m going to speak a little bit about our journey on net zero as Co-operators as well. And this is the flow that I have in mind. I’ll first go to the background, the context, and then tell a little bit about our story at Co-operators of how we got to having a commitment or a set of commitments around net zero. And then I’ll go into where we’re headed with that work and some insights from our journey so far.

Just like Emilie I have a slide about the motivations. And so I’ll show my slide with climate change impacts. And of course these are top of mind, I’m sure for everyone who’s on this call, certainly for our organization in so many ways.

But the thing I want to highlight is the part in red, the growing protection gap. This chart lays out both insured and uninsured losses from catastrophic events and weather related catastrophic events. And from our perspective there’s two big problems with this. Of course, one is the obvious one that the numbers are increasing, but the other is the significance of the uninsured amounts, and so the growing protection gap. And one quote that we reference sometimes in our presentations on this is here from the CRO forum, that says that many risks may be uninsurable as a result of these trends. And this is not a side or periphery issue for an organization like ours. And I’m sure for many of yours either because it means that our mission is under threat.

In our case, our mission is financial security for Canadians and their communities. And climate change represents a direct threat to financial security for Canadians and their communities. So we’re really concerned about this and wanting to use all the levers we have as an organization to try to address it.

Although our commitments to net zero are fairly new. and I’ll introduce that in just a moment, overall our work on climate change is not new and neither is our overall approach to sustainability. We’ve been working formally on sustainability since 2007. Co-operators also has this sustainability policy that is adopted by the board, and that sets our overall tone and direction. And I’ve included a few excerpts from it there, but it really acknowledges the role we intend to play as a catalyst for a sustainable society.

And the other kind of tone setting thing I will highlight is that we’ve got also a public document that outlines our climate commitment, and that was adopted by the board in 2018. And it lays out a number of roles that we play, as I said earlier, the different levers that we think we have to address climate change as an insurer, as a member of the community, investor in the community and yeah, as an investor. But investing our own assets is one of the main areas there. And one of the things that I could say that we’ve probably made the most progress on among the various initiatives we’ve had.

I’ll say a bit more about that now. One more slide here is just to highlight our commitment to the UN Sustainable Development Goals. And in our strategic plan, you know, long term goals that are really about aligning with the SDGs. So all of this kind of fits right into our core strategy. It’s not something that is managed off to the side of the organization.

Past successes in terms of addressing climate change, and this is sort of still part of the build or lead up to the net zero commitments. These include both both activities or initiatives that are focused on adaptation and mitigation. So just a summary of some of the adaptation related initiatives, of course, ensuring climate risks. And that really speaks to, in many ways, the core of the business. We’ve got a comprehensive water product that is kind of its kind in Canada. And then we also have efforts to, of course, help prevent loss and then to advocate for systems change and to be part of various coalitions and advocacy efforts along those lines. So some of those are mentioned there there are several more than that as well.

And then similarly on the mitigation side, reducing emissions, we’ve got what we do with our investments. And I’m going to focus in on that in just a moment. We’ve got some insurance offerings that help try to encourage clients to also be involved in the transition space, I guess. And then of course our own operational emissions as well, where we’ve reached net carbon neutrality equivalent, and now set a new goal of net zero in our own operations as well by 2040.

But on the investment side the story is, we’ve been certainly tracking our emissions from our portfolio for several years now. But in some ways I think maybe the bigger part of the story is actually with respect to our impact investments, our commitment to impact investments. Many years ago, almost 10 years ago, we set a goal of getting to 20% of our invested assets being invested in impact investments, which have a measurable and direct social or environmental impact in addition to the financial return. And in some ways I think fair to say that Co-operators helped shape the impact investment market in Canada with that commitment. And we did reach it. We’re now actually over 21% of our total investments into impact investments. So over 2.5 billion dollars. And of that, more than 75% of that are focused on investments that are in the climate change theme or category. So that includes green bonds and other investments that help communities reduce emissions and so on.

So that’s all the sort of backdrop to our story, and those are all foundational elements to build from. But last year we took a further step and kind of reviewed our… Partly because this world is evolving so quickly, and also because we had achieved the goals we had set for ourselves, we set out to set some new goals. And specifically around climate investing. And I’ll just go through those now and then talk about what we’ve learned.

The first among them is our commitment to net zero. So both in our operations by 2040 and in our investment portfolio by 2050 we’ve committed to reaching net zero. And I’m glad Emilie presented all the frameworks of the Net Zero Asset Owners Alliance before me, because then I don’t have to. But it’s basically following those same frameworks and including the interim targets that are mentioned there.

The other part, though, that I’ll highlight is the second big goal that we set, which is at the bottom of the slide here. And that’s our goal to extend what we’ve done so far on impact investing, to get to a point where we have 60% of our invested assets in either impact investments or another category that we’re referring to as transition finance or transition investments. And transition investments is… I can say a little bit more about that, but that’s really speaking to what Emilie was getting at about the need to focus on emissions reductions in the real economy.

So in the case of Canada, for example, our economy is still fairly dependent on a natural resources economy and having our oil and gas industry and other other industries that are high emitting. We’ve committed to being an investor that helps reduce emissions in those industries through our work, because Canada will not achieve our goals of the Paris Agreement unless we reduce emissions in those high emitting sectors, in addition to obviously growing the low emissions sectors. So that’s the intention with that goal. And we work with our investment management company Addenda Capital, who are the experts in how we’re going to achieve these various targets, in laying out our transition investment strategy and our net zero strategy as well.

Here’s the net zero goals kind of presented in a different way. So this is where we’re at so far in terms of our emissions and with our portfolio. And here’s where we intend to get in the medium term, I guess. And then by 2050. And similarly the goal, about 60% is presented in this way. So it’s not quite a direct build because up to 2020, we were only counting impact investments. And by 2030, we’re counting impact and transition investments. But it definitely builds from that base that we’ve started on.

The slide that mentions that we have also joined the Net Zero Asset Owners Alliance. We weren’t there at the start, like Folksam was back in 2019, but we joined last year, the second Canadian investor after CDPQ to join the Alliance. And as part of that, of course we have all the different commitments that Emilie laid out in her presentation about Folksam as well.

Even though it’s a long journey and we have lots to build on, our experience with the Net Zero Asset Owners Alliance is fairly new. We’re only, I think, less than six months into our participation in that. But it’s proving to be a great forum for learning with alongside other investors about how we’re going to achieve these goals. I have a slide that summarizes some of the insights from our journey overall, so I’ll just get into that.

On the challenges side, of course, it’s true in every realm, but stakeholder engagement takes time. And that can shape sort of timelines for even setting the targets and goals, let alone actually achieving them. But when you take the time to do that, then it’s also very helpful to have clear targets and paths and other peers that are on the same journey as you. Because it just makes that process easier.

Of course, we’re operating in a context, as everyone is, where there’s all kinds of complexity about the external environment, about public policy, about the impact that public policy is going to have on our ability to meet these commitments. And just generally the further you get into it the more you realize that there’s all kinds of complexity in the data and in managing and understanding the trade offs and the implications.

But you know, it says here, “Go slow to go far.” That’s certainly been, you know, our approach is be really thoughtful and deliberate in shaping our approach and working with external collaborations to really help with that. And having interim targets and action plans, of course. And then just, when complexity can overwhelm or when you can get bogged down in the details, it really is important and helpful to come back to first principles and know that, you know, as challenging as this can be, it must be done.

And so we really have a commitment to sorting our way through that complexity and coming back to the first principles in the science as the ultimate motivator and clarifying source of direction. So I think that might be my last slide, Shaun, I’ll just double check that. And happy to pass it back to you and turn it over for questions and answers.

Shaun Tarbuck:

Thank you, Chad. We’ve got a number of interesting questions. Maybe just a couple of comments to pick up on. It’s quite unique with Folksam being one of the founding members of the PRI and Co-operators being one of the founding members of the PSI, the Principles for Sustainable Insurance, which was founded in 2012 I think, if I remember rightly. So we got two founding members of two global structures around the UN that any insurer or investment… or asset owner organization is entitled to join.

Just to give you some indication, this year we have 21 members of ICMIF that have now signed the PRI, last year it was 15. Or six months ago, sorry, it was 15. So another six have added their name to it. As you rightly said, Chad, the offshoot of that for those that are doing even more under the PRI is the Net Zero Asset Owner Alliance. Six months ago, we had just one and that was Folksam. And now we’ve got five members that have signed it and are hopefully working together on that. So that’s a good direction of travel.

Under the PSI, the Principles for Sustainable Insurance, there are now 11 signatories. So that’s two more added in the last six months. And there are two that have signed the PSI Net Zero Insurance Alliance, which is kind of the equivalent of the Asset Owner Alliance. So we are definitely seeing a strong move towards getting engaged. And I do think one of the areas that we can all help each other with is to share that transition and that route.

Now one of the questions we had was, both of you have done slightly different methods of committing to the net zero commitment. Is there a standard that people or organizations should adhere to in terms of how they showcase? Or do you think it’s always going to be very much individual and based on the business and how they see things? I’d just be interested in your perspective.

Chad Park:

Maybe Emilie wants to speak to… I’ll just say the Net Zero Asset Owners Alliance has a target setting protocol that really provides the sort of detailed guidance on how to go about it. So I don’t know if Emilie, if you were involved in kind of shaping that in the early days of the Alliance, but that’s what I would go to, I think, in terms of direction for anyone looking at how to get on the journey.

Emilie Westholm:

Yeah, definitely, I agree. But I also think it’s important, like I said before, to remember that we are all so different. Sometimes you want to be able to compare different investors or different companies, but we’re all different. You cannot really compare a Swedish investor with large investments in Sweden to a Canadian investor with large investments in Canada, because we have different challenges depending on where we are from and you need to take that into account. And you cannot really say that one approach is better than the other. You adjust your approach to where you are.

So I think that’s something just to keep in mind, that it’s okay not to do exactly like everyone else. And I should also say that not all the Swedish investors do exactly, I mean, like Folksam, and that’s totally fine with me. You know, we think there are many great ways. At least, I mean, just start to do something.

Shaun Tarbuck:

So I think that’s the important takeaway is that it’s not standardizing, it is just starting the journey and do something. Because we’ve certainly seen that in the UK when the G… Sorry, the COP26 and our chancellor announced that all financial services companies have to have a net zero commitment by the end of 2023. So you’ve got to scramble to say, “Well, what does it mean? And oh, how do you do that?” So I think we’re going to see more and more of governments driving that agenda. And then the question will be, how do you monitor what looks good or do you even need to? Is it more a case of, should we just accept that everyone gets on the journey? And like, that’s probably the starting point for now, isn’t it?

Emilie Westholm:

I think the first step has been just to look at the carbon footprint of the portfolio, of the investments, to see where you are at. But then to me, it’s just a starting point. So you shouldn’t only focus on the carbon footprint of the portfolio because then you’re just blind to the changes you can actually make through the investments or through engagements.

Shaun Tarbuck:

Yeah. And the question that kind of follows on on that as well is, do you ever get… I mean, I totally agree with you in the terms of you should engage rather than disinvest, but is there a stage where you get to where you would suddenly say, “Well, actually we really can’t influence this company anymore?” Is it time to disinvest or do you just keep going, keep fighting the fight?

Chad Park:

I can answer that from our perspective. I think, yeah, there is, just like there would be for any investment decision. Like, if you don’t have confidence in the organization you’re invested in, then you’re not going to continue to invest in it. And this would be one of the key dimensions of confidence in many ways as an investor. Like, do we have confidence that this organization has a vision for its future. That is thinking about the risks and opportunities that we believe climate change presents to them.

So in our case with our transition funds that Addenda Capital had launched last year, we’ve articulated a set of criteria, like essentially what we would look for to be included in the transition funds. And they include both kind of governance elements and emissions reduction elements.

And then every two years, the bar will get higher, essentially, to be included. And the conversation happens on an ongoing basis with those organizations that were invested in, it’s not like we will surprise them at the last minute that the bar has gone higher. You know like, they understand that we’re working towards a net zero future. And that means that we’re going to have to increase the bar, in our case in every two year time period.

Emilie Westholm:

Yeah. I can just add that we work similarly, but also say that, I mean, we need to be realistic about the resources that we have at Folksam to be able to influence and change all the companies that we might hold. So when you look at that, it’s not possible to hold all companies in the world and to be able to make a change. So we also have to divest for that reason, because when we realize that there’s no point really to continue engaging, then it’s better we focus our resources on the companies that we can actually see if there’s a potential to influence, to change.

Chad Park:

Yeah. And I think the further we get into it, the more we’ll understand which are those companies and…

Emilie Westholm:

Yes, exactly.

Shaun Tarbuck:

And just another question we had about the influence side of things. And you gave a great example there of the fossil free steel. How is it, when you go into a company and you can use their general meeting and that sort of stuff to get impact, but how is it that you actually do that impact now? Because obviously it’s very different doing it nowadays when everyone’s more aware of climate challenges than it was say, 10 years ago. So how is it you can actually go and influence those organizations to really make that change? I suppose it’s more for you Emilie, first.

Emilie Westholm:

Sustainability in general is a topic that’s discussed also at annual general meetings these days. It wasn’t at all a discussion about these issues happening in 2007 when I started at Folksam. But back then we decided to ask a question at all the Swedish AGM where we were present to represent the Folksam customer’s money. And back then it was almost seen as an activist investor showing up, or an NGO or something showing up at the AGM, asking a question about sustainability. For example, climate related issues, but it could be any other topic as well. But today it’s not… We’re still almost the only investor asking a question, especially about sustainability, but the CEO is always talking about sustainability as well, and always explaining why it’s good for the company to focus on sustainability.

So of course we’ve definitely gone from having to start the discussion with explaining why we want the companies to work with sustainability, and that it’s not to be kind to the world, but it’s actually a business case also to work with sustainability. That’s not the discussion anymore. So today we just jump right into more real questions. And that can sometimes be another kind of challenge, because we really need to know more about the company, more about the business. It’s not just sustainability in general and so on. So it’s a different kind of job these days.

Chad Park:

And I’ll just add two points. One, we’re in a bit of a unique situation maybe with Co-operators, in that part of our group of companies is Addenda Capital. We’re both their, I believe, largest client but also their majority owner. So it means that in addition to our assets, they also manage over 50 billion dollars of assets. And it’s through Addenda that we do most of the engagement, so it means that they’re representing Co-operator’s voice there, but also other investors. And that’s helpful.

And along similar lines, my second point is that this is an area where having these coalitions has really helped. Because you know, when we’re talking about Climate Action 100 or Climate Engagement Canada in our context or whatever, these are coalitions of investors who are now talking to investees with one voice on these issues. And that surely helps increase the leverage that the investors have in terms of sending our messages about what are intentions around climate change.

Shaun Tarbuck:

And that’s good to know. So you do it collectively with others that are either in your country or through Climate 100.

Just moving on slightly, impact investing. You mentioned this Chad, and the target to get to 60% impact investing by 2030 is part of your net zero commitments. What are the challenges of actually finding appropriate investments you can do? Because I’ve heard you talk about in the past that the investments you make in impact investing are actually really good ones. So maybe that’s one part you can talk about, but then the second is, is there a pipeline there that is easy for you to access through impact investing? Because not that many, certainly I’ve never heard of anyone else that has as high a percentage. 21% you said currently invested in impact investing.

Chad Park:

I think you’re right on that last point. I know our CEO, Rob Wesseling has kind of asked the question in many contexts, like, what if every financial institution had 20% of their invested assets in impact investing? What a difference that could make. But to answer your question, I think certainly the market is evolving rapidly. And in some ways, it’s probably the most significant determinant of the pace at which we can get to our goal, is how much there is out there in this space to actually invest in. And it’s growing, we could do more if there were more opportunities out there. So it’s coming, that’s specifically on impact investing.

But the 60% that I mentioned also includes transition investments, and that is, currently anyway, mostly in equities. So I think it’s important that we also get a balanced portfolio out of this. And so far, most of our impact investments are fixed income, like bonds and so on. So we wouldn’t be over-weighting our investment portfolio to just one asset category, one investment. So that’s partly why the target reflects both now, because overall we still need a portfolio that has a mix of different types of assets.

So if I think of Emilie’s… one of her first slides there, the pie chart with the different kinds of investments. It’s really about what are the different… knowing that a balance like that is important for any investment portfolio, then it’s about, “Well, in each of those different categories, what are the opportunities to exert some influence and to be an active investor?

Shaun Tarbuck:

Emilie, you got anything to add, I suppose, the amount you talked about the green bond investment side, that’s all impact investing as well, isn’t it? How do you source those types of investments?

Emilie Westholm:

Yeah, I think what’s interesting is the definition of impact investing. I think sometimes it’s… Usually we mean green bonds, for example, sustainable bonds. But I would like to see transition investments, also SSAB the steel company, it’s also an impact investment. They’re also making an impact. So I would like all companies to be impact companies, instead of just focusing on doing investment in the companies that are already classified as impact companies.

Shaun Tarbuck:

Yeah. Fascinating. I did have a couple more questions, but I know we’re running out of time. So I do thank you both for a fascinating discussion and presentations. As I said, I think the biggest takeaway there is get on the journey. There are others out there that are further ahead, but the most important bit is to start the journey. I think that’s the message I certainly got.

And what we will be doing as ICMIF is bringing the groups that are on this journey, or start the journey or are leading the journey, and try and bring them together on maybe a bimonthly basis or a quarterly basis just so that they can share best practices and certainly share the knowledge between each of us. Because we’re seeing so many more ICMIF members doing this. And I am aware there are lots of other groups out there as well, but doing it the mutual way, I think there isn’t another group. So I do think there’s some value in that.

So we’ll be in touch with all of those on the webinar, and thank you for that. And if we can just move to the next slide, if you haven’t managed to get hold of a copy yet, then we have published, for the first time published it anyway, the ICMIF Members Sustainable Investment Report, which is a fascinating read. It’s only a short one but it’s got a lot of good examples of who’s doing what. For instance, impact investing collectively amongst our members is now over 10 billion. So there’s a number of members. Two are already over 10% of their total assets in there. Green bond invest also doubled year over last year, as did the total amount invested in sustainable investment frameworks, which went from 286 billion to 576 billion in just one year. So I’m kind of hoping we might get to the one trillion by the time we do the next years report later this year.

But one trillion is certainly on the horizon for us collectively as a group, which given that we’ve got two trillion in dollars in total assets would be 50%. So that’s another great direction of travel. So the report is there, please do download it and have a look. It shows who’s doing what and where as well.

So with that, I will say thank you very much in indeed. And thanks for those listening and those listening on record. We’ll see you soon. Thank you very much, everybody. Bye.

Emilie Westholm:

Thank you.

Chad Park:

Bye.

 

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