LuxFlag’s Sustainability Investment Week (LSIW24) kicked off on Tuesday, with several speakers sharing their relative optimism around commitments to ESG and impact investing.
LuxFlag chairwoman Denise Voss kicked off Tuesday afternoon’s conference. She emphasised the evolution in sustainable investing that she’s witnessed especially over the last five years.
While she spoke of challenges related to “regulatory uncertainty”, as well as issues like greenwashing and the lack of financial education, over the past five years asset managers have been repositioning their product ranges, identifying Article 8 or 9 funds or ones that can be labelled.
“Although there is still regulatory uncertainty as to the future shape of SFDR, for instance, I believe we’re entering a new era of labelling, especially by internationally focused agencies, such as LuxFlag,” Voss explained.
A main reason for this, she added, is the level of knowledge around impact investing and ESG and how these can be implemented, plus there’s a “better understanding of the value of a label by asset managers, banks, insurance companies but, more importantly, by investors.”
Following her speech, LuxFlag CEO Isabelle Delas shared more on the upcoming activities for the labelling body, which Investment Officer Luxembourg discussed with her in a previously published interview.
Committing to net-zero targets
During a keynote speech, senior ESG analyst at Union Investment, Johannes Böhm, shared more about how the company is performing climate assessment along the Net Zero Investment Framework (NZIF).
Union Investment had joined the Net Zero Asset Managers Initiative in 2021. As Böhm described, much thought was given around the use of a robust methodology, efficacy in having a real economic and ecological impact, plus applicability to make climate strategy relevant for Union Investment’s asset classes. “And last, but certainly not least, we thought about suitability in retaining those degrees of freedom that are needed to manage and steer porfolios effectively and steer clients’ demands,” he added.
NZ pathway
Union Investment assesses the companies in which it invests across five categories and six KPIs, with categories ranging from “Not aligned” to “Achieving NZ”. As certain intermediate targets are met along the NZ pathway, companies would bump to the next category. “What we would like to do is to push companies from one category to the next in a certain time plan, along certain intervals of five years,” he explained.
By 2025, it aims for the companies to move to having at least committed to aligning to NZ. For each five-year interval, it would like companies to bump up another category toward NZ. “Ideally, by 2045, we have all companies in the highest category—achieving NZ,” Böhm explained, adding that pushing companies to decarbonize their own business models, in turn, helps Union Investment fulfill its own commitments. “Hence, we want all of our portfolios to be net zero by 2050 as well.”
Low-hanging fruit
The company has also taken a look at “low-hanging fruit”, the roughly 50 companies that represent 75 percent of its total GHG footprint. Böhm outlined the possible escalation steps available along the company’s path to 2025, ranging from collaborative engagement to focus engagement, critical interview, AGM votes, AGM speech, public vote of no confidence up to divestment.
He added that four years ago, “only very few had set themselves a full net-zero target”, including Scope 1, 2 and 3 emissions, but four years on, this has changed moderately. Most companies, he added, with which they have engaged as part of their climate strategy have either set themselves to NZ targets until 2050, while others were on the verge of doing so.
“As a matter of truth, I have to concede, we’ve seen one or two companies actually roll back on the targets. That’s part of the uncomfortable truth,” Böhm explained. “But, overall, we see there’s a strong momentum in companies adopting NZ targets and embarking on their decarbonization journey.”