AMP Capital has compiled a list of 10 environmental, social and governance (ESG) issues tipped to top investor agendas over the year ahead.
The AMP Capital ESG watch-list ranges from wide-angle climate change concerns down to tightly-focused industrial problems such as the use of child labour in cocoa production.
According to the ESG paper, business and investors are taking the lead on climate change “in the face of inconsistent global regulatory action”.
For example, investors are now “calculating how exposed their investments are to changes in global temperature” across four key categories covering physical, indirect, policy and transition risks.
The AMP Capital report says better disclosure of specific corporate climate change risks was another emerging trend this year. In particular, the UN Taskforce for Climate-related Financial Disclosures (TCFD) protocols – that require companies to reveal climate change scenario plans and transition efforts – will become more influential this year, the paper says.
“We expect the degree of scrutiny of disclosures under the TCFD to increase in 2019, as investors delve deeper into the adequacy of recently disclosed transition plans,” AMP Capital says.
The fund manager also ranks efforts by financial services firms in “regaining community trust” as a big ESG focus this year for investors – an issue given urgency by the recent Australian Royal Commission (RC) into financial services.
“This is not a new theme for financial services companies. Banks in other countries have faced similar challenges,” the report says.
Of course, the RC was not limited to banks with AMP Capital’s parent company itself – the ASX-listed AMP – copping much flak during the almost nine-month public enquiry last year.
“In 2019, investors will be focusing on governance issues including culture and remuneration. To the extent that misconduct and errors have resulted from systems, processes and culture in the financial services sector, investors will be examining the degree to which all three are being changed,” the ESG paper says. “Remuneration will also be a focus for 2019, particularly if it is suspected that sales, revenue or profit targets have incentivised companies to profit at the expense of customers’ best interests.”
The “ethics of investing in social media” also makes the AMP Capital ESG list with the subject particularly topical for NZ investors following Facebook’s live-streaming of the Christchurch mosque shootings in March.
“The way social media companies respond in 2019 to the laws and regulations being passed by governments all over the world to deal with privacy and the protection of users’ data will be critical. Investors will be watching the response of these companies carefully,” AMP Capital says.
AMP Capital’s full ESG hot topic list for 2019 covers:
- Climate change;
• The ethics of investing in social media;
• Investing for impact;
• The war on plastic;
• Child labour in cocoa;
• Regaining community trust;
• Access to medicine;
• Palm oil and deforestation;
• Modern slavery and supply chains; and,
• Antibiotics in our food supply.
In a note sent out by the manager’s NZ head of distribution, Rebekah Swan, AMP Capital says: “The relevance of ESG issues has never been greater. Investors want data on, and progress around, some of the biggest ESG challenges globally, so that they can consider the investment impact of these issues and use their seat at the table to drive positive change.”