“Historians may well reflect on 2021 as a watershed year for sustainable investment. In our view, new regulations and demands on investors to focus on real-world impact are not just welcome, but are critical to meet shared sustainability challenges head on.”
Eszter Vitorino, Lead Expert, Sustainability Advisory
For us at Kempen, the world of sustainable investment orbited around three elements in 2021 – Covid-19, COP26 and regulation. This year, each of the elements made its mark on our work.
Like the rest of the world, all facets of our industry continued to be dominated by Covid-19 and the news rightfully focused on the human tragedy caused by the virus. But behind the headlines, the pandemic has also forced investors and companies to scale up their resilience to systemic shocks, and place greater emphasis on ESG considerations, with inflows to ‘sustainable funds’ attracting a record $4trn in 2021 by one account.
This, in turn, has prompted a healthy debate around the true value of sustainable investment and emphasised the need among investors, and the entities that they invest in, to show that the value created benefits all stakeholders in society.
Meanwhile, the latest assessment report from the IPCC demonstrated without a shadow of a doubt the connection between human activity and unprecedented global warming. The scientists examined five potential scenarios around the warming of the planet and every single one suggested that the Earth will reach at least 1.5ºC of warming in the next 20 years.
Figure 9: IPCC findings on how the frequency of extreme weather may increase with each degree of warming.
Source: IPCC Sixth assessment report
This alarming report served as the underlying scientific basis for November’s COP26, the Glasgow Climate Change Summit, which saw some notable global commitments to tougher climate targets, reductions in methane emissions and a pledge to end deforestation.
While the summit failed to be the turning point that many had hoped for, for the financial sector and the industries we invest in, it was a watershed moment. The financial sector has both the capital and incentive to enable real change and through the Net Zero Asset Managers Initiative (which Kempen joined in December 2020) and the Glasgow Financial Alliance for Net Zero, there was a headline pledge of $130 trillion of assets committed to reaching net zero by 2050 and fund a just transition.
What’s certain is that increased accountability in sustainable investment is here to stay. There were new influential bodies announced in 2021, such as the International Sustainability Standards Board (ISSB), and regulations such as the EU Sustainable Finance Disclosure Regulation (SFDR) which became effective in March 2021 and the EU Taxonomy Regulation that applies from January 2022. Beyond the regulatory agenda, the progressive shift of sustainability issues into the mainstream and increased attention on good practice means all systems in finance need to improve, or risk losing both competitive advantage and public confidence.
As we orbited these three elements, we worked with our clients to advance our sustainable investment and stewardship activities at Kempen. The following sections will explain how we responded to these elements: how we expanded our ambition, how we delivered against our commitments, and what we do to hold ourselves accountable. We’ll then have a glance ahead to what’s in store for 2022.