Transcript by Kensho.

Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a senior writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Esther Whieldon: On this podcast, we often hear from financial institutions about how they're engaging on sustainability issues. One such approach, participating in investor engagement initiatives or networks. Investor-led engagement initiatives aim to provide a platform for institutions to come together on a common set of objectives for a specific list of companies. 

Lindsey Hall: Today, we're going to be examining 2 investor engagement initiatives on climate change and nature and how those are evolving. Both have been in the headlines recently. 

One is Climate Action 100+. This is an investor-led initiative engaging with about 170 of the world's largest companies to take action on climate change. Since launching in 2017, Climate Action 100+ has grown to include more than 700 members that are collectively responsible for $68 trillion in assets under management. 

Now this group is delivered by 5 investor networks, working with the initiatives, investor signatories, and they include some names and acronyms you might be familiar with if you follow this space. The Asia Investor Group on Climate Change, the Investor Group on Climate Change, the Institutional Investors Group on Climate Change, or IIGCC, the Principles for Responsible Investment, or PRI and the nonprofit Ceres. Now ClumAction100 Plus was initially launched as a 5-year initiative to run from 2017 to 2022. But last year, it announced it would run to 2030. And in 2023, it announced its Phase II strategy. We'll learn more about what Phase 2 involves from Ceres President and CEO, Mindy Lubber.

Esther Whieldon: Now while Climate Action 100+ is moving into Phase II, the other investor-led engagement initiative we'll be exploring today is just getting started. That initiative is called Nature Action 100. 

Nature Action 100 currently has nearly a dozen investors in the launching investor group, including BNP Paribas, AXA Investment Managers and Storebrand Asset management. And it has some of the same investor networks involved, including Series and IIGCC as well as the finance for Biodiversity Foundation and the nonprofit think tank Planet Tracker. 

Nature Action 100 had a soft launch at the UN's big Biodiversity Conference, COP15 in Montreal in December 2022, and the initiative recently released a set of investor expectations. 

To learn more about what Nature Action 100 is planning, we'll hear from Adam Kanzer. He is Head of Stewardship Americas at BNP Paribas Asset Management. I interviewed Adam and Mindy at the GreenFin Conference in late June. If you'd like to listen to our other coverage of this year's Greenfin conference, we'll include a link to those episodes in our show notes. 

Let's start off with my interview with Mindy, where she talks about how investor expectations have evolved under Phase 2 of the Climate Action 100+ initiative. 

By the way, you'll hear Mindy mention the term benchmarking. In general, this refers to any time the performance or other metrics about one company are compared to the same metrics for a broader set of similar companies often within the same industry or index. 

Now Climate Action 100+ is net zero company benchmark assessed how its focused list of companies are doing on emissions reduction, governance, disclosure and other metrics. And these benchmark results often inform investor engagement strategies. 

Okay. Here's Mindy.

Mindy Lubber: Investors are recognizing the financial risks of climate and wanting to engage with, work with, educate, advise the portfolio companies that they work with to make sure they're looking at risk. And that means good governance, the investors who have always cared about governance. 

I want to make sure it's even more precise and clear in Phase II that Boards of Directors of major companies with major footprints and major risks, that the Board's seeing that risk as part of their fiduciary duty, their responsibility to look at risk. The investors are also -- and again, they are looking at are companies making progress -- because talking to companies 7 years ago, they may not have been doing anything. Three years ago, they may have worked with their investors to come up with a set of goals around climate. If they're not implementing those goals, executing on them, then they're probably not reducing their risk. 

Now we've got to make sure the goals are transformed into a climate transition plans. And not what it means in 2040 and not what it means in 2050, but what does it mean in 2025 and 2027 and 2030. If we start and say, oh yeah it's 2030, I have a 2035 goal, maybe I'll start now. It is just too late to accomplish that goal. So it's much more looking at time and looking at specific transitions, short term, transparent, accountable and specific, and that's what the investors looking at from companies, and that's what they're trying to start doing themselves. 

And again, the investors are at risk. They have a fiduciary duty to make sure the companies in their portfolios are minimizing risk within their sectors, within their work. And Boards are doing more of that and investors are more intentional about looking for progress, not just about setting goals because goals are good, but words are words and deeds are deeds. 

The investors are also looking for better disclosure. And again, whether it's climate, whether it's diversity, whether it's inflation or currency risk, they just need to know when there's a risk with the company so they could say, hmm do I want to invest in this company or to want to sell the company? It's fairly straightforward. 

Esther Whieldon: Would you consider Phase 1 of Climate Action 100 plus to be wholly successful? Or what lessons, if there are some lessons learned from it that you're applying now. 

Mindy Lubber: The reason I wouldn't say it's totally successful because the job is not done. I would love to say, well, those 100-plus companies, 165 or so have just nailed it perfectly. And most of them haven't. We have seen substantial progress with about 75% of the companies, and that's a good thing. 

But we still have a long way to go. Moving, changing the programmatic landscape of some of the most entrenched industries in the world. I mean most of the sectors within Climate Action that are focused on aren't the easy sectors. If they were easy, they probably are moving forward ready. They are sectors that are complicated. And nobody is sitting here saying the oil and gas sector is going to transform overnight or the automobile industry. What the investors want to know is how do they set them up for success over time. 

So we've seen progress. I would argue we haven't seen enough. The world is changing faster than we had hoped. Scientists tell us we have 7 years -- some people believe it's virtually impossible to get to that 1.5 degrees that we've already passed it. I don't know exactly how many years it is, but I know that faster movement has got to happen now. 

And I think Phase 2 allows us to be more precise, allows us to call for more specific things. We've done a lot of education of 700 investors over the years. They're still going to all make their own decisions. That's what the law they have to do, but they've got far more understanding and backdrop and information and now with the benchmark to actually make those decisions in a smart way. 

The other thing that makes me most excited about the benchmark is that it now does consider equity as well. So people like to think climate is just climate. We know that the financial implications of climate are very real in many ways and how they harm people on the front lines. how we're making the developing world sort of our experiment, we grow and they get the harm. So we're trying to focus on the implications as well of equity.

Esther Whieldon: What are you doing different when it comes to what you're expecting of your member investors?

Mindy Lubber: You learned from the first 5 years in the first 5 years, how we get information to -- I mean, investors want information. They want methodological tools, they want factsheets. They want to work together as they think about this and then they've got to go off and make their own decisions as fiduciaries. 

I think we have much clearer lines for information that they need, how to get it to them. There's a lot of focus on sectors, which investors were keenly interested in, they asked us to do, which is random companies aren't as compelling as moving a sector. So a lot of investors coming together and thinking about sector groups. 

In the end, they still vote their proxies the way they want to vote their proxies. And they're not all doing it as one. They're doing it based on the data and the facts that they see in analyzing the companies and their portfolios.

Esther Whieldon: Three things Mindy said stood out to me. One is something I heard a lot at GreenFin, which is how the talk about climate change has shifted from setting goals and targets to implementation of transition plans. 

She said investors are expecting to see companies implementing decarbonization plans as an indication of whether the companies are reducing their risk. Hand-in-hand with that is investors seeking better disclosure from companies. Mindy said. 

As I mentioned earlier, Mindy's Group Ceres is one of the investor networks helping Nature Action 100 with its launch, which is the next initiative we're exploring today. Nature Action 100 on June 26 released its list of investor expectations and also revealed the 8 sectors that I would focus on. We'll hear more about what those sectors are from Adam in a second. But first, here's item explaining at what point Nature Action 100 will be officially launched?

Adam Kanzer: We're not saying it's an official launch yet. It's yet another stage in the seemingly endless process to getting this thing off the road. I think the idea is that when the letters go out to the 100 companies, that's what we're going to say we've officially launched. And we will launch with a base of investors. Right now, we only have the 11 investors that are part of the launching investor group that helped put the whole thing together. But we did a soft launch of COP15 in Montreal. 

Yesterday, we did a webinar where we put out the investor expectations and the sectors that we're looking at. We're inviting investors in. We're going to reveal the companies to the investors. We're not going public with that quite yet. And we'll be spending the summer of recruiting investors to make sure that they're comfortable and fully onboard. And then I think we'll have a formal -- we'll say yes, we're officially launched.

Esther Whieldon: So you're not mentioning specific companies yet, but what are some of the sectors that you're focusing on?

Adam Kanzer: Yes. So the pharmaceutical biotech sector, we're looking at mining metals in metals, minerals, the forestry, pulp and paper. Food, I think food going to be a really huge focus for NA-100. I mean, it's just so many direct impacts to biodiversity from food systems. 

The chemical sector is going to be really important too and probably challenging.

Ceres really did a lot of the groundwork on this to do the research, do the scientific research to say like what are the sectors that are most frequently identified as the most impactful. And so we're taking 100 companies from those sectors. 

And I also want to be clear here that when we do come out with a list of 100 companies, this is not a list of 100 worst companies in the world. It's not the 100 companies that are destroying the planet. We really want to be clear about that. It's 100 companies that we believe are systemically important for reversing nature loss by 2030. So it's going to include some companies that are actually probably leaders in this area that are moving in the right direction, and we just need to kind of push them to go a little bit faster as well as some companies that are going to be difficult. But it's a blend. It's a mix.

Esther Whieldon: So -- okay. So the next step is officially letting the company -- listing the company, setting them the letter. When do you expect that will happen?

Adam Kanzer: Beginning of September.

Esther Whieldon: Okay. So this year. What has...From my...

Adam Kanzer: What has taken so long? We ask ourselves the same question on a roughly a weekly basis. We had a couple of internal plans for when we were going to launch that got missed and missed and missed and missed. I mean, the thing is starting a new thing is immensely complicated. And there's just more moving parts than you anticipate when you first start. 

What we started with was a solid group of investors that were really 100% aligned. And that was already so great to see. I mean it's largely we know each other, not all of us, there were some new faces, but we found ourselves finishing each other's sentences in some of the early discussions. And it was so clear. It's like, okay, we all have pretty much the same vision that we haven't even really fully articulated yet, but we're all on the same page, great. We want to work together on this. Let's work this out, and let's get this right. 

And I think part of it is we want to make sure that it's right and that takes a little bit longer. We're working with multiple organizations now. And so there's the internal process of organizations figuring out how to work with each other. That's taken some time. 

It's just standard stuff, but we're all anxious and excited to get started. 

We want any investor that is interested and has the capability to engage on these issues to join with us. We need everybody's help. We need everybody's mind around the table to figure it to figure this out. This is really complex. It's more complex than climate, by a lot. And there's a lot of science here and one investor scientists. So we need a lot of help. 

And we also want to make sure that it's a global effort. And right now, the group of investors is primary -- is European and North American. So we want to make sure we bring in some Asian investors. I know there's a lot of investors in Australia that have expressed strong interest that they're very, they're already working on nature issues, but they really want to do it collaboratively. We want to make sure the global South is represented. So there's a lot of things we need to do. 

We need to make sure indigenous voices are represented, find of efficient and meaningful way to do that because it will be also not only human rights implications of some of these dialogues, but we want to be able to benefit from their understanding of these issues.

Esther Whieldon: I imagine you're probably like in early discussions with some of the areas, some of the regions you've talked about. What are they telling you they need to see to like join?

Adam Kanzer: What I heard, I will say, like from the Australian investors, one of their concerns was they want to make sure that local Australian issues are going to be addressed. One of the most complex aspects of dealing with Nature Loss is that it's all local. It's a systemic risk, but the impacts are all local. And the context is different. And you really have to understand that context. 

And so I suspect that we will probably form regional investor groups that understand their issues on the ground because the Australians were basically saying, "look, there are issues that are unique to Australia. And they're not really part of the global agenda. And we want to make sure that our issues get addressed."

Biodiversity is all local. You need to understand the local ecosystems, the local contacts, the local community. So yes, there are global issues. We're all using too many chemicals in agriculture, for example. We're all using too many pesticides. That is, unfortunately, a global issue. We're probably all using too much water. I mean those kinds of things are globally true, but you still have to bring it down to the local to understand how to fix it.

Esther Whieldon: Today, we heard from Mindy about how investors are increasingly looking to see how companies are progressing on their climate goals. She said, "Goals are good, but words are words and deeds are deeds." 

And we heard from Adam how Nature Action 100 is ramping up for a formal launch and hopes to attract institutional investors from Asia and Australia to add to the mix of European and American investors already participating. Adam also noted something we've touched on before on this podcast, which is the challenge of understanding nature risks and impacts. With climate change, we need to reduce emissions on a global scale in order to limit warming to well below 2 degrees C. But mitigating nature-related risks and impacts is much more localized and unique to each area, he noted.

Lindsey Hall: Yes, it will be interesting to see how these discussions of the global scale versus the local perspective play out at some big upcoming climate conferences. Most notably, I'd say at COP28, which is the UN Big Climate Conference taking place in Dubai in November and December 2023. Please stay tuned as we continue to cover how investors are engaging with companies on both climate change and nature

Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

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