What were you looking for?
To expand Alphinity’s knowledge of emerging ESG and sustainability trends, Moana traveled to London to engage with industry leaders and better understand the evolving regulatory landscape. At the Responsible Investor conference (RI Europe), she gained a deeper appreciation of the materiality of various ESG issues from asset owners, asset managers, regulatory bodies and sustainability organisations like the United Nations Environmental Programme Finance Initiative (UNEP FI) and the Transition Pathway Initiative (TPI). She also met with ESG specialists and research houses to document views on key topics like climate change, nature and human rights. As a highly influential ESG market, we were seeking insights from those leading the sustainable finance drive across Europe.
What did you discover?
This is the third time that Moana has attended the RI Europe conference. Reflecting on the top themes discussed this year, attention on climate change and regulation (both for corporates and investors) were consistent with interests in previous years. However, the emphasis on nature, transition finance and greenwashing stood out in 2024. While there was still little coverage of social elements, we suspect this may change soon given upcoming sustainability reporting regulations cover topics like human rights, diversity, equity and inclusion, and human capital.
4 dominant themes at RI Europe
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Nature and biodiversity, the main issue in focus
As the world’s largest carbon sink, it felt like nature was positioned as the next frontier in climate action. The term ‘nature positive’ was spoken about like a new ‘net zero’. Mirroring the recommendations brought by the Taskforce on Nature-Related Financial Disclosure (TNFD), almost all panels emphasised the importance of managing impacts and dependencies within portfolios. While mapping all these intersections can be complex, starting by identifying and managing deforestation and water risk seemed to be a common first step among investors.
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Transition finance is gaining more attention
With global emissions still rising, the importance of transition finance emerged as a dominant topic. There was a strong view that divestment or exclusions aren’t conducive to real-world decarbonisation and that quality stewardship should remain the focal point for investors. Tools to build credibility and track progress on net zero strategies are therefore critical, such as systematic assessments of company transition plans and formal escalation mechanisms.
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Greenwashing was a focus, but enforcement remains in the early stages
It was interesting to hear the Chair of ESMA (Europe’s financial markets regulator and supervisor) communicating that the region’s greenwashing approach is tending towards supervisory action, rather than enforcement action. This approach, that steers clear from penalties for now, is because of the evolving nature of ESG and sustainability regulation across Europe, and within its Member States. This highlights that, while greenwashing continues to be a priority for regulators globally, there are different approaches by region. The Australian regulator, for instance, has embodied a stricter penalty led approach.
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Focus on social issues was limited, but may change with new regulation on ‘S’ aspects
Year after year, attention on social issues considered important in the Australian responsible investment community, such as human rights, psychological safety and traditional owner management, are yet to attract RI Europe’s attention. While the mix of panels on climate change, transition finance, nature, biodiversity and regulation are relevant, it is a stark contrast to the mix of topics often discussed at other local responsible investment conferences. We do suspect, however, that key regulations like the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) will move the spotlight on the ‘S’ over time and may provide a more balanced discourse. This may also influence company priorities and attention over time.
What does this mean for Alphinity?
Although EU and UK regulations do not directly affect Alphinity’s operating and reporting requirements, we find it valuable to learn more about ESG trends and systemic risks from these influential markets. It helps us to prioritise future work, informs our expectations and tone in company engagement, and creates a broader perspective on what’s important to responsible investors globally.
We also know that Australian regulation related to sustainable fund labelling and climate reporting is likely to follow European regulation. It is therefore useful to look to these markets for a glimpse at what’s to come in Australia.
RI Europe convened many different asset owners, sustainability organisations and other ESG leaders that reinforced the importance of key internal projects such as our Net Zero Asset Managers commitment, and emerging biodiversity-related research on antimicrobial resistance.
These global regulations often have an impact on our investee companies. For example, among the many different ESG and sustainability regulations in Europe, the EU Deforestation Regulation is coming into force at the end of 2024 and may impact companies trading raw commodities in their value chains. There may also be more of a social spotlight on human rights and supply chain due diligence, emphasising the need to continue engaging our investee companies on responsible sourcing practices.
Attending global conferences, such as the RI Europe, and speaking with our peers outside of Australia helps us to benchmark best practice, continue our focus on thought leadership, and monitor critical regulation that often has a material impact on the companies within our portfolios.
