Season 3, Episode 1 – Game Changers: Capital for Climate

Elena:

Hello and welcome to ESG Matters @ Ashurst. I'm Elena Lambros, a risk advisory partner specialising in Climate Change and Sustainability. You are listening to our new season of Game Changers.

In Season 3, you'll hear from industry leaders who are dedicated to solving the world's most pressing sustainability challenges. From innovators at the cutting edge of technology, to impact investors funding a cleaner energy future, each and every one of our guests is changing the game in their field.

In today's episode, you'll hear my conversation with Rebecca Ogg, a sustainable investing analyst at Fidelity International. Let's jump in and hear the discussion.

Welcome, Rebecca. We're so lucky to have you on the podcast today.

Rebecca:

Thank you very much, and it's great to be here and I'm looking forward to our chat.

Elena:

Yeah, absolutely. I think for just our listeners, would you be able to just tell us a little bit about yourself and your role at Fidelity?

Rebecca:

Yeah, sure. A bit about me. I'm a lawyer, I'm a mum of two young kiddies. I actually started going to law school wanting to be an environmental lawyer, and I ended up working at Ashurst for quite a lot of my junior career. That saw me in the Resources Team and then the Corporate Team. And I ended up working at Fidelity International as a corporate lawyer until around 2018. I started seeing these pieces of regulation come across my desk and I thought, "Mm, something's shifting." We saw the taxonomy regulation and sustainable finance disclosures regulation, which for a lot of people sound really dry, I'm sure, but for me it was super fascinating because it started to click and it was a bit of an "aha moment" for me as to how regulation can work with finance to help shift capital flows to more sustainable outcomes. So I joined after that, the Sustainable Investing Team. And from then on I get to spend most of my days looking at how regulation and policy can help our climate goals, which is great.

I kind of just for the listeners split my job into two key topics. One is looking at how regulation and policy can affect Fidelity and helping Fidelity comply with that. For example, corporate disclosures like we're about to see quite a lot of in Australia on sustainability. And the other is looking to engage with governments on how we can pull different policy levers and shift policy to support the climate transition and other sustainability outcomes. You see a lot of transition plans from companies come through and they say policy is a key barrier to some of their net zero commitments. And so what we try and do is engage with governments and we see that as a critical part of trying to overcome those barriers that are identified to the transition.

Elena:

Great, thank you. And I love that shift when you see the impact that regulatory and policy and finance can make in terms of the transition. And I think you're right back in 2018, I think you said it was, it really has seemed to been driven quite a lot from that side of it. Whereas, previously, not so much. So I think that shift is really interesting to think about. Can you tell me about Fidelity International and how sustainable investing fits in?

Rebecca:

We're a large global asset manager. We have around 900 billion in client assets across Canada, Europe, Asia. And we invest in a variety of assets, some public equities, fixed income, real assets. And we invest for a variety of clients, but lots of these clients are long-term investors. So we invest for pension funds and superannuation funds in Australia.

And so investing for long-term growth, what does that mean for sustainability? Well, it means we need to start considering these sustainable risks. So the World Economic Forum this year identified, and I think this has been ongoing across several years, but they identified five of the 10 key economic risks for the next decade are going to be environmental. So for us as investors and investing for the long term, it's really hard to ignore these risks and the opportunities that come with it.

So taking then a step back, what does sustainable investing mean then at Fidelity? Well, it's not really one size fits all, unfortunately, because there are a lot of clients and there are a lot of different client demands and what they're looking for for sustainable outcomes. I think I try and look at it and break it into two buckets. One is more de-risking exercise, and then the other is investing in sustainable solutions. So if you look at the risk side and look at things like climate change, water risk, food scarcity risks, and I think we know and you see in your work as well, these are becoming quite large financial risks and have the potential to do so over time. So there was a recent study I saw from the University of Cambridge that put Australia's GDP losses at around 15% by 2050.

Elena:

Which is really, really quite stark when you think about it. You think about the fact that everyone's been talking about climate or environmental from a certain perspective for some time. And then you mentioned a large GDP number directly related to some of these risks. It really does start to change the way you think about it or the way you might think about your investments.

Rebecca:

Yeah, I think so. And you're already seeing some of these risks by now, even though they're challenging to quantify. We've seen some extreme weather events globally and also in Australia, and we're starting to see transition risks through Safeguard Mechanism, for example. And so there's future losses that can be quite big, but there's also present risks and we're starting to see financial consequences of that.

Elena:

So that's one side. So that's the really clear risk mitigation. How are you addressing that? How are you thinking about that? How are you putting that into your financial decisions? And then there's the other side that you think about.

Rebecca:

Yeah, then there's the climate solution side or sustainability solution side. And we see that as more for clients that really want direct capital into achieving sustainable outcomes. And you have clients that want to do both, manage risk, but then also direct money more positively. And so we have a range of products that then can help clients with that. So that's broad across climate and then also nature. So we'll have a range of aspects that you're trying to address. So you might have a fund that invests in materials that are needed for the transition. So critical minerals we're seeing for solar panels or EVs, for example. We have funds that look to improve water outcomes because we see water as a very big increasing risk. And then you have funds that invest in real estate assets that are converting from brown building practises to greener building practises.

Elena:

Great, thank you. And then to the extent that you are able to, could you just maybe just touch on where you've seen appetite for these type of investments grow? Have you seen quite a lot more interest over the last couple of years? And if so, what would that be driven by?

Rebecca:

Yeah, it varies a lot. I think in Europe we've seen a continued interest in sustainable investing more generally. And that's certainly within Australia as well. I would say primarily, a lot of this sits within the risk management or better than your peers investment. So really looking at how do we invest in a diversified portfolio that has better sustainability outcomes than other companies? But you are seeing clients pick up particular thematics. So for example, the Transition Materials fund that I spoke about, we're seeing a lot of traction with clients on that fund who want to really be part of driving the transition rather than necessarily investing in the final product. And that's some examples of where we're seeing client interest, but I'd say it varies considerably per market and then also what the clients are trying to achieve with their own sustainability commitments as well.

Elena:

Yeah, no, great point, but it's great to see that there's a lot of interest across the value chain for different ways that you can be contributing to the transition.

Rebecca:

Yeah.

Elena:

So then you've talked a lot about the outcomes and the different options that there might be. How do you actually measure the sustainable impact of your work?

Rebecca:                                                                                                                

That's tricky. And as you would know, there's no perfect solution to this.

Elena:

No.

Rebecca:

I think we're operating in a world where we still have quite a few data challenges in terms of data availability. And then when we do have data availability, the quality of the data. I think we're hoping that sustainability disclosures through ISSP and the iterations of that globally and maybe disclosures in Europe will help with that. But for the moment on the climate side, we track the carbon intensity of our portfolios and then we also look at the companies we invest in and what their climate ambitions are and what their targets are, so we can get a sense of how our portfolios are going to track towards net zero as well. We also do quite a lot of stewardship. That's where we use our investor voice to try and engage with companies to support change. And that's on the climate side, whether it's asking companies to set more ambitious targets, give us transition plans, for example. And that's also relatively hard to track.

So what we try and do is we track what we are doing. So we set milestones for the engagements, for our key engagements. And then we track what company progress is against those milestones rather than trying to necessarily link our actions to company change because that's more challenging, a company could have changed for a variety of reasons. But overall, if it's a change for a positive, then we're happy.

Elena:

Yeah, I like that. I really like that change for a positive. I think that's got to be a good outcome, right?

Rebecca:

Yeah, exactly.

Elena:

Alongside carbon intensity measures and reviewing transition plans and putting in stewardship. So if I think about what else I've seen you do at Fidelity International, I just want to know how important are collaborations and partnerships in terms of helping you achieve some of those sustainability objectives?

Rebecca:

I think they're critical, really. Nature, social and environmental risks are, they're big systemic risks. We can't do it alone. So we work collaboratively through quite a few engagements with other investors globally, where we engage with large corporates to try and drive change on some of these topics. One bit that I'm quite interested in is now we're starting to look at how we collaborate across the value chain as well to try and drive systemic change. So one project that we've started looking at is how we try and work to reduce methane emissions.

Elena:

That's very topical in Australia.

Rebecca:

Yes, it is. That's why we've picked it up. We're really honing in. It gets even more niche because we're looking at how you reduce methane emissions in the steel value chain.

Elena:

Okay, wow.

Rebecca:

So that's with met coal companies because we see met coal as probably continuing for much longer than we maybe would like it to in the absence of green hydrogen really starting to take off. And so how do we minimise that risk now so as it continues to be used as we transition to net zero? And what we're starting to do is take a step back from how we might have historically engaged, which then looks at engaging with the investing companies in your portfolio to how we can then engage with a variety of stakeholders that can help drive change in this space. So we're looking at talking to the innovators in this space. So the companies that are creating the tech to abate emissions on mine sites and to help with drilling. We're looking at speaking with funders in this space that are funding that technology. Obviously, the companies and coal miners within our portfolio as well. And then also how we engage with governments on this topic and what they're doing around fugitive methane emissions in met coal mines.

And I think this is a really interesting new way of thinking about collaboration as well, and not just collaborating with other investors to engage with portfolio companies, but how are we collaborating across industries and sectors and different areas of expertise to try and help tackle a specific sustainability topic?

Elena:

Yeah, no, that's a wonderful idea. And also something that people have been talking about and struggling with a solution for such a long time. So to bring a new way of looking at it, I look forward to hearing the outcomes of what happens. I'll be tracking it.

Rebecca:

Me too. I'm hoping with the COP next year maybe we get a bit of extra traction and a very supportive Australian government at the moment. So fingers crossed.

Elena:

Yeah, fingers crossed for sure. And so then just picking up on a little bit of some of the things you've spoken about around government and the other role, part of your role in terms of the way that you think about it. Sounds like you do quite a lot of policy in your role. Could you maybe outline a little bit more detail around what you specifically ask governments to do?

Rebecca:

Yeah. I talk to policy makers quite a lot and I guess I was trying to think of the one thing that I could break down to, but I think it's really looking for certainty. And maybe if I could add another one, some tools we need as investors to help direct sustainable finance. That's what we're looking for. And I know you look at transition plans quite a lot and what a good corporate transition plan is. And really that's what we're asking governments to do. So what is your plan? What is your target? Let us know sector by sector how you're going to get there and then let us know where the investment gaps are and give us the tools that we need to help plug that. And that might not be just Fidelity because we're at the very end of the financing chain, but how all players across finance can help that and what policy levers you might need to add within that to help encourage finance.

So it's really the whole spectrum and making us feel confident as investors that the government has a detailed plan for how they're going to get there and we can work within that.

Elena:

I love those questions, by the way. Great questions to be asking.

Rebecca:

Yeah. But it sounds incredibly ambitious is something to ask, but we are seeing some examples of this globally. And if you look at China and the stuff they're doing, you do start to see how this can piece together in terms of having a detailed climate strategy. And then having a well-thought-out sustainable finance framework that links directly into that strategy and that collaboration and integration in planning. I think it's a good example that we can try and start using elsewhere.

Elena:

Yeah, no, absolutely, because it is often that's the area that they can control in terms of their area of influence and actually having a really great impact on the transition. So no, I would agree. So we're coming towards the end of our conversation, but one thing I think is always really interesting to ask is what advice would you give to people who are really passionate about making a difference in this area?

Rebecca:

I think as a start at the company you're working in.

Elena:

Yeah.

Rebecca:

Because I'm sure they're struggling with this, they're trying to manage climate risk, they're looking at their climate disclosures, they're thinking of how they're going to start planning for the transition. We have a Sustainability Ambassadors Programme at Fidelity, where we try and rein everyone in to help with messaging and tasks that we might have. And so I think I'd start there.

On a personal level, there's quite a lot we all can do. I think it seems so overwhelming sometimes. I don't know about you, but it feels like there's a lot that's asked to do. And I read this article from the World Resources Institute recently, who I really like, and they broke it down into four things, which I thought was helpful. It was vote, easy in Australia because we have to, but if you can electrify your house, electrify your car and try and take the train more than flying, which is a little challenging for us given our geography, but they were the four things. So I'm trying to stick to that.

I guess the space is still evolving, it's new. Probably unfortunately, it's going to be around for quite a long time and we need all hands on deck. So start with the little steps and you'll get there.

Elena:

No, thank you. Thank you for the advice. And I love your outlook on this and the way that you've managed to take some personal like, do it at home, I guess, in the ways that you can, and then also bring it into your work. I think that is a really great combination.

Well, thank you for your time. Thanks for joining us. I've really enjoyed the conversation.

Rebecca:

Thank you so much for chatting.

Elena:

Thank you for listening to this episode of ESG Matters @ Ashurst. I hope you found this episode insightful.

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