Increasing shareholder activism is expected to play a crucial role in sustainable investing in 2023 as investors and asset managers become more resolute in pushing corporate and financial institutions to achieve sustainability targets, according to Federica Calvetti, head of ESG and strategic activism at Eurizon, the asset management division of Italy’s largest financial group Intessa Sanpaolo.
In a year when the world is hoping for recovery, Calvetti says the common themes facing sustainability investing include risk management and regulatory consolidation as the global financial industry races to meet the United Nations’ net-zero targets.
Eurizon has approximately €400 billion (US$440 billion) of assets under management as of last June with around 50% of funds' AUM covered by Articles 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR). Article 9 funds have a sustainable objective while Article 8 products promote environmental and/or social characteristics in the context of good governance practices.
“We are now seven years away from 2030 when carbon emissions need to fall by about 50% from 2010 levels, according to the International Panel on Climate Change, for the world to have a chance to reach net zero by 2050 and ultimately maintain temperature rising within 1.5°C. So, nobody has the luxury to stay back or not do enough. The good news is that we are at a time when the world is working towards a common goal, albeit at different paces. But really, it feels like everyone right now is pitching in and doing their own part to try to get to that level,” Milan-based Calvetti told The Asset during her recent visit to Hong Kong.
Risk management in sustainability investing has always been a controversial issue across industries and financial institutions – “what are the risks, how the risks should be mitigated at an industry and company level, as an asset manager, and as a client – ultimately this is the discussion”, Calvetti says.
The second big theme facing sustainability investing in 2023 is regulatory consolidation. Institutions are taking on a much bigger role in trying to give uniformity in market standards, particularly in the kind of disclosure that is needed, how to manage risks, and how to review opportunities.
“Over the years, the understanding of what sustainability represents for an issuer or what sustainable investment is for an asset manager has been developing mainly through voluntary actions or voluntary guidelines. However, we are seeing the regulatory environment evolving and consolidating globally, not only in Europe, but also in the UK, US and Asia. I think this is critical because, at this point in time, we know we're looking at 2030 globally,” Calvetti says.
Institutions in Asia are also playing a big role in giving direction and uniformity to these discussions. Calvetti cites as an example the pace at which renewable energy is being developed in the Chinese market and green bonds being issued in India and other Asian countries.
“Green bonds are becoming crucial for the financing of green initiatives. From this perspective, we see a degree of convergence of best market practices for the issuance of these instruments between the Asian market and the European market. And I see the green bond market becoming much, much more relevant in Asia outside China. China already plays a big role in the green bond market. I think that we will see green bonds becoming more relevant also for other Asian jurisdictions,” Calvetti says.
There is growing awareness and knowledge about sustainability investing among Asian companies, as well as a greater willingness to engage with European investors on sustainability issues, particularly on ESG data.
“That type of awareness and engagement gives me confidence that we will get more and more data in the years to come. I think there is overall more willingness from Asian companies to share information and their experiences. And to me, this is very important because it’s really a signal of greater awareness and importance that these companies are giving to ESG matters to suit their environmental performance, their social practices, as well as how they're working and benchmarking themselves on governance matters, for example around their environmental performance, their social practices, as well as how they benchmark on governance matters. That is becoming more and more relevant,” Calvetti says.
In terms of shareholder activism, Eurizon has taken a more global focus for its ESG stewardship. As of the end of September 2022, it had voted in 227 annual general meetings (AGMs). In the last two years, the firm turned around its AGM voting ratio to approximately 70% international companies and 30% Italian companies, from circa 40% international companies and 60% Italian companies.
“As we have taken more of a global view for our stewardship activities, we have looked more closely at environmental and social proposals abroad (outside Italy). Climate change will continue to be a big priority for us for the years to come, not only in 2023,” Calvetti says.
In 2023, Eurizon will be looking closely at transition plans from companies when it votes in AGMs.
“We will not refrain from voting transition plans down if we don't believe they're credible enough or ambitious enough. We do that in the interest of our clients and we want to deliver clear messages to companies, to make them aware of what the requirements are, and where their ambition should be,” Calvetti says.