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Active Thinking: Navigating key sustainable investing trends

Stephanie Maier, Global Chief Sustainability Officer at GAM Investments, delves into the latest sustainability developments, exploring topics such as biodiversity credits, mandatory reporting and labelling.

01 March 2024

Sustainability is a multifaceted concept, spanning a vast landscape. Within this dynamic realm, we have previously identified three key themes: climate, nature and disclosure, all of which continue to see developments. As the regulatory landscape continues to evolve, its impact resonates throughout the markets where our clients operate.

Climate – COP 28 climate commitments

COP28, the 28th annual United Nations Climate Change Conference, served as a global platform where governments convened to address climate change. It is a critical forum for discussing strategies to limit and prepare for future climate impacts. Held in Dubai, United Arab Emirates (UAE), COP28 aimed to uphold the commitment made by 195 countries in the 2015 Paris Agreement. The goal of the Paris Agreement is to keep global average temperature rise this century to below 2 degrees Celsius and ideally within 1.5 degrees Celsius above pre-industrial levels.

Despite the controversy surrounding the choice of Dubai as the host, given its status as an oil-producing nation, COP28 served as a checkpoint. For the first time, countries acknowledged the need to ‘transition away from fossil fuels in energy systems’. While this recognition is crucial, the agreement lacks specific timelines or mandatory actions. The final communique emphasised renewable energy expansion and energy efficiency improvements, but implementation remains a national responsibility.

As companies and governments commit to climate action, transparency becomes paramount. Regulators now demand disclosure on how climate-related risks and opportunities are managed. The UK, during its COP26 presidency, established the Transition Plan Taskforce. This initiative provides guidance on creating credible transition plans to enable investors to better assess their effectiveness. The asset management sector, too, received tailored guidance. While rooted in the UK, the objective is to globalise these principles. Although progress may be gradual, recognition of the need for transition plans is growing.

Nature – Biodiversity credits

The investable perspective on nature remains a topic that the industry is actively grappling with. One of the drivers to nature being an investment and financial issue is the concept of biodiversity credits. Biodiversity credits represent measurable units of biodiversity that can be bought and traded by companies. Similar to carbon credits, they serve as milestones toward achieving nature-positive goals. Unlike carbon credits (which offset emissions), biodiversity credits focus on enhancing and restoring biodiversity. The objective is to create a market that channels public and private funding into nature restoration efforts.

Australia has a nascent biodiversity credit market, and the UK has recently implemented biodiversity net gain legislation. For developers, this means that if a project impacts biodiversity (eg by building on natural habitats) they must compensate by purchasing biodiversity credits. Similar to climate credits, questions arise: How credible are these credits? Is the market verified? Are the credits permanent? The need for these to be credible with appropriate governance, traceability and standardisation, learning the lessons from the still evolving carbon credit market, is paramount. As discussions evolve, we anticipate increased interest in this critical theme.

Disclosure – How does mandatory reporting affect asset management firms?

The shift from voluntary to mandatory reporting continues to shape the landscape of financial disclosures. Asset management firms face increased data requirements and a growing need for comprehensive information from the firms they invest in – supporting investment decisions and their own entity and product level disclosures. As an asset manager operating across various jurisdictions, we strive to consolidate these diverse reporting requirements and support harmonisation through standards such as ISSB.

The regulatory landscape – Labelling

As we navigate the regulatory landscape, several key developments are significantly shaping the financial market, our products, and our product-related disclosures. The EU’s Sustainable Finance Disclosure Regulation (SFDR) has been a focal point. Although the consultation period closed in December 2023, the official response is not expected until 2026. A critical question arises: Should SFDR evolve beyond the current disclosure regime? Some suggest that it should incorporate explicit labelling requirements with minimum standards.

In the UK, December was a busy month for regulatory activities. The Financial Conduct Authority (FCA) unveiled its sustainability disclosure requirements, which include a labelling regime. The UK’s earlier consultation draft played a role in shaping this discourse. The emergence of these labels will not go unnoticed as Europe refines its own labelling framework. We expect more specific guidelines to accompany the existing anti-greenwashing principles.

Evolving global trends

Beyond Europe, climate-related disclosure requirements are gaining traction worldwide, in countries including Singapore, Japan and Australia. These countries continue to emphasise climate disclosures. The US is actively engaged in this space. China is ramping up disclosure efforts, including alignment with listing requirements on major stock exchanges. The regulatory landscape is dynamic and interconnected. As investors, we must stay informed and adapt to these evolving requirements across borders.

Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.

The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

Stephanie Maier

Global Chief Sustainability Officer
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