Key takeaways from New York City Climate Week 2023
Executive summary:
- Members of the Russell Investments active ownership team attended Climate Week NYC, where they focused their efforts on networking with subadvisors around integrating climate-related issues into investment portfolios as well as sharing key insights.
- The event demonstrated that investor focus has shifted from corporate reporting and disclosure to measuring solutions and the impact of corporate climate targets.
- The sentiment in conference rooms and breakout sessions was that U.S. headlines around ESG were creating more confusion among retail investors—not reflecting the reality discussed in boardrooms and investment committees.
The week of Sept. 18 in New York City brought with it the start to fall weather and Climate Week—an annual gathering hosted by Climate Group. This weeklong event featured more than 585 official events and activities, uniting policymakers, business leaders, investors, and various environmental stakeholders. Their collective aim was to engage in discussions about the challenges and opportunities presented by climate change, fostering innovative solutions.
Climate Week NYC took place in tandem with the annual session of the United Nations General Assembly (UNGA). The UNGA brought together world leaders to address the path forward for the Sustainable Development Goals, which include meeting the challenges related to climate change. As a result, the events of Climate Week NYC happened in duality—divided between public policy-focused and private industry discussions. Contradicting this division of scheduling, many of the talks at both events emphasized the importance of public policy supporting private industry in furthering climate action.
Expanding on the importance of a cohesive agenda, many saw the discussions happening in New York during the week as a foreshadow of the talking points expected in Dubai later this year for COP28. It was difficult for leaders to agree on the balance of action between the public and private spheres. At an event hosted by the New York Times, the role of fossil fuel companies in deciding climate action was up for debate. Former U.S. Vice President, Al Gore, warned that oil interests are “trying to co-opt climate action” while Michael Bloomberg argued that they needed a seat at the table, stating that “Big oil is part of the problem. They are also part of the solution.” This debate will certainly continue at COP28 as the oil-rich United Arab Emirates (UAE) hosts the climate talks.
The Russell Investments active ownership team spoke at and attended several of the events taking place. We focused our efforts on networking with our subadvisors around integrating climate-related issues into investment portfolios and sharing insights in a constantly evolving space. A few key themes trickled throughout the conference.
1. There is a shift in investor focus from corporate reporting and disclosure to measuring solutions and the impact of corporate climate targets.
Increasing transparency of environmental, social, and governance (ESG) metrics through corporate reporting has been a prevalent topic in the investment industry for the past few years—and while this area is still important, many investors are now asking, How do we measure progress and impact in the disclosures being made?
In many panels, the answer kept coming back to engagement—specifically, creating meaningful dialogue with corporate holdings to better understand the feasibility of climate-related targets to a company’s strategic outlook. Many investors agreed that basing ESG analysis on a number provided by a ratings agency was not enough—and that instead, the nuances need to be delved into through conversation. From there, investors would be able to showcase and measure progress toward stated corporate targets.
2. While anti-ESG made headlines in the U.S., the sentiment among investors in attendance was that ESG wasn’t going anywhere.
The consideration of ESG risks and opportunities in an investment approach now appears to be considered a routine practice among asset managers. While the specific strategy used differs by investment approach, the sentiment in conference rooms and breakout sessions was that U.S. headlines were creating more confusion among retail investors—not reflecting the reality discussed in boardrooms and investment committees.
Indeed, ex-U.S. asset owner actions appear to not follow the confusion found in the United States. Using Canada as an example, in the past year, over 81% of total Canadian pension fund assets had committed to net-zero emissions by 2050. This mirrors the growing climate commitments seen in Europe and Asia. As the world continues to see the physical impacts from climate change manifest, we expect to see asset owners push for sustainability considerations in their portfolios.
3. Legislation creates needed opportunities and excitement for sustainable growth in the U.S.
The Inflation Reduction Act (2022), the CHIPS and Science Act (2022), and the Infrastructure Bill (2021) have presented investors and corporations with tremendous opportunity for sustainable growth. These legislative moves by the U.S. government were referenced again and again by investors as examples of carrots that regulators can provide to support the shift needed to a low-carbon economy. The World Bank estimates that, globally, over $1 trillion USD will need to be invested per year by 2030 to combat the worst impacts from climate change.
At Russell Investments, we see this optimism reflected in our conversations with our holdings companies. Each has their own challenges, but many are strategizing how to best benefit from these opportunities while meeting their set climate targets. For example, we recently talked with executive leadership at a Japanese cement company that is looking to strategically expand its green-cement program in the United States. In other words, the company is supporting the growing construction movement brought about by the infrastructure bill while also gaining tax-related benefits outlined in the Inflation Reduction Act.
The importance of policy development from regulators should be emphasized. We expect it will be especially challenging for investors and companies to meet net-zero commitments without continued and expanded government incentives. Public policy support will help private industry further integrate climate change into their respective strategies.
4. Biodiversity was still top of mind as the Task Force on Nature-Related Financial Disclosures (TNFD) released its final recommendations.
The week wouldn’t have been complete without mention of the ESG topic a la mode: biodiversity and natural capital. The TNFD launched its long-awaited final recommendations and many conference panels speculated on the impact. Climate change and nature-related risks are deeply interconnected and better understanding this complexity (and pricing it) is a challenge facing financial institutions. The hope of the TNFD is that the tool developed will support investors meeting this challenge. We expect this topic to be ongoing as we (and our peers) evaluate the framework.