As the world continues to emerge from Covid-19 lockdowns, the cracks in economies, societies and environmental ambitions are clearer.
Looking ahead to 2023 and beyond, the legacy of debt from this crisis limits governments’ ability to help societies through difficult times.
We will most likely see more action and businesses will want to play a bigger role in tackling critical issues, from demanding climate situations and threats to biodiversity to cost-of-living crises.
In short, the long term turns out to be very much of the past. In this context, active control and the ability of a fund manager to adapt investment methods to demanding long-term situations and opportunities will be more vital than ever to investment performance.
First, climate replacement is an inevitable problem. All investors are exposed to the impact, not only of global warming and environmental damage itself, but also of political and economic action to address its causes. Investors want to make sure that any exposure to those hazards is considered and controlled alongside opportunities for climate solutions. .
At Schroders, we are committed to moving to 0 in the coming decades, adding the establishment of a science-based target, validated through the previous Science-Based Targets initiative in 2022.
But setting a purpose is the simple part. How we and other companies decarbonize is central to the price we will create for our customers. Our Climate Transition Action Plan outlines our roadmap.
Obviously, political momentum has slowed in 2022, but more importantly, the sector continues to move forward, helping to close some of the gap between the ambitions announced by world leaders and preparing businesses for the transition.
The COP27 climate summit in Egypt in November did little to consolidate global commitments to action. That said, an agreement on a “loss and damage” fund to help emerging countries mitigate a key challenge to make the necessary adjustments to meet the goals set in Paris in 2015. The focus will be on COP28 in the UAE at the end of 2023.
Our purpose has been to use our voice and influence to engage with exposed corporations and push them to expand transition plans. In the coming year, we will accentuate those efforts.
In this context, the role of herbal capital and broader threats to biodiversity are essential. Climate threats are symptomatic of the structural and developing tensions between the developing call for a larger, richer and hungrier global population and limited global resources for that population.
Today, we use resources equivalent to those provided over 1. 7 Earth years, pushing us further into the shortfall of herbal capital and intensifying the threats created by the degradation of global ecosystems.
By some estimates, about $10 trillion of herb capital value is lost annually, underscoring the accumulation of hidden liabilities in the global economy.
The truth is stark: nature’s threat is temporarily becoming a key driving force of threat and return on investments. That’s why we published our first company-wide nature protection plan at the end of 2022, combining our moves to date and setting a long-term direction. for the action we are taking to address the reasons and implications of nature loss.
On the human front, a cost-of-living crisis has broken out in many countries, and while peak acute tensions may ease in 2023, poverty is a risk we will be watching. Few governments have the fiscal capacity to absorb the family. Budget deficits and social tensions may intensify. Companies are under pressure to protect vulnerable staff, whether through pay increases and benefits for their own staff or their duty to hire chain staff.
We may see greater tension in political systems. This can undermine investor confidence that political leadership will obviously set priorities, returning the duty to corporations and investors like us.
While the replacement of climate and nature has made headlines, especially in the run-up to COP27 and COP15, we anticipate increased attention to social issues, adding human capital management, human rights, diversity and inclusion in the new year. These are central themes for active participation. for us at Schroders.
As the forces shaping price in money markets multiply, the variety of inventory will be a partial solution.
Our ability to interact with the corporations and assets in which we have invested will be a mandatory lever to create price for our clients.
Few corporations are prepared for the world we are heading towards, and encouraging or pressuring them to adapt will be vital to their value.
We launched our own Master Plan of Commitment in early 2022, outlining our expectations for the future we invest in and plan to build on this foundation.
As we focus on influencing investment, active ownership will also be a vital component of those strategies.
Our own survey of more than 700 institutional investors in 2022 found that approximately a portion (48%) is focused on the effect of their investments, up from about one-third (34%) in 2020. We expect this trend to continue.
These trends are taking hold in the context of more intense industry scrutiny and skepticism than ever before.
Regulation is spreading from the EU to other parts of the world and the need for transparency and clarity in product promises will likely rightly increase.
Greenwashing headlines have highlighted the importance of transparency; And the antidote is honesty, transparency and consistency. That’s why, for example, ahead of COP15, we signed Business for Nature’s Make it Mandatory campaign, which calls for mandatory disclosure for all giant corporations and monetary establishments of nature-related effects and dependencies from 2030 onwards. .
We are committed to helping our clients navigate our investment products and perceive what they can expect from other types of strategies.
For those of us focused on sustainability in the investment industry, the last few years have been incredibly busy.
Keeping up with the scale and speed of regulatory substitution has already been a challenge.
Developing analysis, modeling, and adapting our engagement with portfolio corporations to reflect our depth of the implications of structural social and environmental trends on the developing volume of ESG knowledge all add up to those requirements.
None of this will be in 2023.
Schroders is a world-class asset manager with 38 locations in Europe, the Americas, Asia, the Middle East and Africa.
Past functionality does not guarantee long-term functionality and may not be repeated. The price of investments and the source of income derived from them can fall and accumulate and investors may not recover the amounts invested in the first place. All investments involve threat, adding the imaginable threat of loss of principal.
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