Sustainable investment Q&A

Rebecca Craddock-Taylor addresses some of the key topics for Gresham House and our industry

Was 2020 the year that changed the sustainable investment industry?

The last year has put a spotlight on our economies’ reliance on a healthy environment and well-functioning societies.

We also observed many ESG funds out performing their traditional counterparts, so even ESG sceptics were left questioning their assumptions that being a sustainable investor means lower returns.

2020 was the year that changed the trajectory for the sustainable investment industry. It moved us from a period of understanding to a period of action.

It highlighted that being a sustainable investor is not just for a small section of investors. Instead, it provides numerous investment opportunities, generates strong investment returns and protects (or enhances) our current way of life.

Why are ‘green’ recovery plans so important post Covid-19?

Social factors came to the fore in 2020, with the impact of Covid-19 rippling across the globe, whilst the Black Lives Matter movement brought attention to racial injustice. Both, rightly, took precedence over environmental considerations for governments, companies, and investors in 2020.

The environmental crisis is ultimately a social issue in its cause and its outcomes. Environmental degradation is a significant risk to our societies. It will impact all parts of our lives and Covid-19 has demonstrated how costly a global social problem can be – failing to achieve net zero as soon as possible will dwarf the costs we have incurred during the during the pandemic.

The Government’s 10 Point Green Recovery Plan is a call to action to finance the future. It very clearly sets out the priority areas for investment.

The Green Recovery Plan is vital in progressing towards a net zero economy but still relies heavily on private investment and has negated initiatives to reduce emissions.

Overall, it highlights numerous opportunities for investors across various asset classes.

Which sustainability topics do you think will be most important in 2021?

The social impact of Covid-19 and racial injustice will continue to form a key part of sustainability objectives for investors in 2021 and beyond.

However, as we near COP26 in November, climate change is expected to creep back up the agenda and become a focal point of action.

In addition to climate change, I believe biodiversity loss will become one of the biggest sustainability topics in 2021. Conference of the Parties to the Convention on Biological Diversity (COP 15) is due to meet in May and aims to set the biodiversity framework direction for the next 10 years or more.

We are currently exploring ways to support biodiversity initiatives across some of our Real Assets, including Forestry, Sustainable Infrastructure and New Energy.

We plan to carry out research at one of our solar sites to understand what actions would be most beneficial, for example planting flower-rich or arable wildflower meadows, creating ponds and new hedgerows.

We are also exploring opportunities to invest in initiatives such as biodiversity net gain habitat banks.

What will the next decade bring?

The ten years to 2030 has been labelled the ‘decade of action’ for the environment as we transition towards a net zero economy.

We expect the momentum gained in 2020 to be built upon and the view that sustainable investment is a fad or fashion can definitively be removed from the conversation.

We will certainly be taking many actions over the next few years, especially in the lead up to 2025 to ensure we meet our purpose and achieve our strategic target of becoming a recognised leader in sustainable investment.

What actions is Gresham House taking to address climate change risks and opportunities?

Many of our investments positively contribute to the transition to a low carbon economy.

For example:

Our New Energy division invests in wind, solar and battery storage assets which together are transforming the energy sector from fossil fuels towards one dominated by renewable energy
Our Forestry division provides opportunities to invest in assets that produce resources that reduce reliance on high emitting industries, such as cement and steel, as well as opportunities to invest in forests that generate carbon credits producing a tool to offset emissions
Our Sustainable Infrastructure division seeks to invest in various sub-sectors that we expect to positively change the way we live, including waste solutions diverting waste from landfill and creating new sources of energy, and agricultural technology that produces food efficiently but with less impact on our environment

In relation to climate change risks, we plan to carry out a project in the next year to understand our starting point and measure the exposures our business and our investments have to the physical and transitional risks that climate change will bring about.

What are the main considerations for investors wanting to increase their allocations to sustainable investments?

Understanding if an investment is sustainable or not is not a binary question and is difficult to assess from an ESG rating alone.

The solutions required to address the environmental and social challenges that we face are not necessarily included in ESG rating providers’ universes and therefore investors must look beyond passive ESG funds.

Ultimately the success of sustainability relies on us stepping outside our comfort zone and investing in areas that have not served our past but will be the change makers for the future.

No one knows what perfect looks like yet because there is no rulebook in sustainability. Instead, it is about taking steps forward by investing in assets that are aiming to provide solutions for the big environmental and social challenges we face.

What challenges remain for investors to measure sustainability contributions of their investments?

Standardisation of sustainability measurement is in its early stages, but more are being developed. However, not all sustainability outcomes can be measured quantitively. There are some metrics that are easily measurable, but the ongoing impacts of those aspects can be much broader.

For example, improving board diversity can be measured by ticking a simple requirement – say two out of five board members being women – but the outcomes of this statistic may also be improved business performance and innovation as well as influencing greater diversity across a business¹.

Whilst measuring sustainability of a business requires an assessment of core indicators, investors must also consider the wider resulting outcomes and impact which cannot always be measured or quantified.

How is Gresham House adapting to the fast-paced change in the sustainability industry?

We recognise we are in the relatively early stages of our sustainability journey but are proud to have taken huge strides forward in a very short amount of time.

Since 2018 we have concentrated on formalising our approach to sustainable investment across our investment processes and since then have been working to embed sustainability into our investment decision making.

We invest in a range of assets that contribute to some of the greatest environmental and social challenges our economies and societies currently face.

To be heard above the noise within this industry and be recognised for the positive contributions we are making, we have committed ourselves to ensuring our sustainability strategy is implemented with integrity and authenticity.

Rebecca Craddock-Taylor

Rebecca joined Gresham House in July 2020 in the newly created role of Director, Sustainable Investment. Previously, she worked as an ESG Strategist at Univest, responsible for setting a leading sustainability framework across Univest’s investment approach, as well as setting their sustainability objectives for the next five years. Prior to this, she worked at Hymans Robertson as an Investment Consultant and Responsible Investment adviser where she designed and developed their responsible investment client proposition whilst working closely with a range of clients to enhance their approaches to responsible investing and ESG.

1. Sloane Review https://sloanreview.mit.edu/article/gender-diversity-at-the-board-level-can-mean-innovation-success/