THE GLOBAL PANVEST FORUM 2022
Incorporating consequences or impact of business operations on all relevant stakeholders is top of mind for most investors. “Returns Vs Impact,” is a debate that only time will solve. Until then “Returns With Impact” has become the strategy of choice. We believe that the returns and intrinsic value of a firm will no longer be determined purely on cashflows, assets and liabilities but will also reflect its impact on human, social and environmental capital.
In the world of investing, environmental capital is ready to be incorporated into the financial decision-making of investors. Our 2nd Global Panvest® Forum will delve into the subject of Asia’s impending environmental impact. We aim to identify opportunities and risks, both from top-down policies, as well as bottom-up sector and stocks perspectives.
Our Forum brought together environmental capital experts with investors to illuminate the path for Returns with Impact.
AN OVERVIEW FROM THE SPEAKERS
After a 2 year hiatus due to the pandemic, we were pleased that so many people from the sustainability community made it to our 2nd Global Panvest Forum. With 100 attendees, it seems that the appetite for knowledge sharing and learning was much higher than prior to the pandemic.
The topic for this year’s forum was Returns With Impact – Becoming A Consequential Investor. The Forum was divided into three sections:
1. To get a sense of Asia Pacific’s environmental and climate ambitions, both from a top-down country perspective as well as bottom-up company targets.
Are these good enough?
Where can we see signs of positive change?
And how can we build a potential framework to map out their collective impact?
2. An understanding of Returns with Impact from a business perspective.
Are companies doing enough to create impact?
What is Steward Leadership?
And how do you implement it in an organisation?
3. The we heard from seasoned investors on how as we evolve to becoming consequential investors.
Why is it so hard for us to change our Risk/Return Framework to incorporate Impact?
Should we consider new return expectations beyond impact less benchmarks?
Can and will impact every be priced into returns?
Melissa Low, Research Fellow at NUS Center For Nature-based Climate Solutions kicked off the forum as our first speaking on the topic of Environmental Impact in Asia – A Top Down Policy Perspective. With 60% of the world’ population and 60% of the world’s growth in economic output, Asian countries mainly China and India are and will be the largest source of emissions in the world. Not only, this Asian countries are the most vulnerable to climate change and food security.
Are Asian Countries Doing Enough?
Findings from the UN ESCAP Technical Paper in 2020, found that 38/44 developing countries have Climate Change specific laws but only 9 have climate laws that include the NDCs or legally binding carbon targets. 32/44 countries had a designated Ministry focused on Climate Change but none were ranked as effective in terms of coordinating on the NDCs. 29 countries did not have policy frameworks to align their private sectors with the NDCs and 22 did not have policies aligning lending to the NDCs. Finally 35 countries need significant effort to comply with the ETF from 2024.
It’s clear significant effort is needed for countries in Asia to sufficiently address climate change from a national policy perspective. However, given the socio-economic risks that Asian countries are challenged with such as inflation, climate disasters and uncertainty over energy transition priorities may not be aligned on climate change immediately.
Rajeev Peshawaria, CEO of Stewardship Asia Centre (SAC) Singapore, began the second part of our forum with a presentation on Steward Leadership exploring the role businesses and leadership in creating social and environmental impact in addition to returns.
As we face challenges of climate change, social unrest and income inequality, there are several tools that have been brought to companies to promote ESG but the question is are they enough?
Tools such as:
Cheaper Capital for green projects
Regulation - min standard and benchmarks for social and environmental capital
Measurement and reporting frameworks and requirements
Incentives – such as tax and executive compensation that include KPIs on social and environmental capital.
He shares that there are not enough and in addition to these you need Stewardship Leadership to deliver social and environmental impact.
How do you implement Stewardship Leadership within an organisation?
He shares that this needs to come through the following values not rules:
1. Interdependence – view the world as an interconnected system in which your success depends on the success of others.
2. Long-term View – create sustained value for both current and future generations.
3. Ownership Mentality – take pro-active responsibility to pursue steward leadership.
4. Creative Resilience – Develop tenacity to find innovative solutions to disruptive challenges.
These values have to be part of the culture and DNA of an organisation – this means that everyone in the company becomes a Steward Leader. If this doesn’t happen then companies will quickly find themselves in a PR disaster – highlighting the United Airlines example of a gentleman being forcibly evicted from a flight.
Finally, he shared that the board has a huge role to play in being be an active partner in setting values, purpose and strategy. Which is one of the key areas the panel discussion focused on. While governance has traditionally been valued by the board, education is very much needed on the Environmental side where there’s a lot of confusion and also the timelines are very long compared to financial returns. The audience also wanted to know how to convince the CFO that impact and returns can co-exist. The panel agreed that setting KPIs and measuring outcomes would lead to better performance over time and generate impact.
The third and final part of the conference looked at Returns With Impact from an investor’s perspective with a presentation from Chris Gee, Senior Research Fellow at the Institute of Policy Studies. Chris Gee has been working with Panarchy Partners over the last few years on incorporating impact measurement into financial metrics through re-framing the Capital Allocation Line to a Capital Impact Line as investors need a way to reconcile Returns With Impact.
Organisations have a responsibility to price their goods and services properly to include externalities. Chris gave several examples of how to calculate the True Price of an organisation’s products and services by using the price of Fair Trade coffee with a comparative coffee non-Fair Trade or through carbon taxes.
Moving onto the investor’s side of the equation, Chris and Panarchy Partners have adapted the 3P reserve model, ironically from the fossil fuel industry, to price in longer term impact reserves given the lengthier time-frame to see material non-financial capital impact. Using an example from a global renewable energy company, he shared how this framework can be used by investors to account for Returns With Impact.