During the week of 5/9th of September, the fourth edition of the "Sustainability week" organised by the Italian Stock Exchange took place, with the participation of the major investment funds, advisors and corporate companies engaged today in investment processes to facilitate the transition towards a sustainable economy.
As Sara Lovisolo, Group Sustainability Manager of the London Stock Exchange Group, of which Italian Stock Exchange is a member, pointed out at the end of the proceedings, the event is unique on the international financial scene and sees more and more players involved, despite the current macroeconomic challenges, this year involving a panel of over 150 exponents in face-to-face meetings and others connected virtually, to put the state of the art of sustainable finance at the centre of the debate and to identify future investment scenarios from an ESG perspective.
Experiences of collective engagement
Among the relevant topics around which the fourth edition of Sustainability Days was held was the growing role of collective stakeholder engagement in sustainable investment processes, largely due to the regulatory framework dictated by the SFDR, EU taxonomy and CSRD regulation.
In this regard, a wide-ranging debate was held in the closing session on 9th September, where representatives from the financial sector gave an overview of current best practices and new projects in the pipeline.
As Isabelle Reuss, Senior Climate and Social Advisor of the Forum for Sustainable Finance, pointed out, if at the beginning the engagement process was more of a formative nature with company representatives, now the aim is to make it a collective one, focusing on the importance of outcomes: this is to give financial stakeholders much more power and to bring companies in line with European legislation.
Regarding the Pillar Environment of ESG, during the engagement processes with companies and investors, the first step is to ask whether they have disclosed company data on this, or if they have set targets in line such as the Science Based Targets Initiative (SBTI), which is an information gathering and a long-term path, also planning to ask companies what is the alignment with the European taxonomy, also involving SMEs early on, so that they are ready when regulation requires it.
Reuss concludes pointing out for the ESG Governance Pillar, apart from the topic of Gender Equality - which is still to be stressed - that the remuneration policy on sustainable activities, thetax and the lobbying policies, which must not conflict with sustainability are the three topics of collective engagement that need to be addressed in order to give an organic whole.
Another important project on the topic of engagement was illustrated by Nabylah Abo Dehman, Head of Stewardship, Social Issues and Human Rights, Principle for Responsible Investment (PRI).
As illustrated by N. Dehman, PRI has been active on the topics of engagement and stewardship since 2006, with PRI Principles 2 and 5 focusing on the collective engagement that investors adopt to increase the sustainability of companies.
The other theme covered by the two principles mentioned above, relates to human rights and supply chain engagement.
The topics that the PRI considers central to its Observatory for which it implements engagement processes are the following (with the role of governance always transversal to all topics)
- Climate change: Climate action one project class, it is the world's largest climate engagement program with 700 investors involved
- Human rights: Advance project to promote human rights and positive outcomes promoted by investors and companies involved in mining, renewable energy, with 40 companies in the pipeline that will start in October and last 5 years, also bringing experts and academics to the working tables.
They will be based on the UNGC principles and will delve into human rights issues in companies and supply chains, providing access to remedial processes above all.
For this they have set up requirements to admit investors that are required to:
- Have human rights policy
- Conduct due diligence process
The “Advance" Engagement Project - PRI
Since engagement is fundamental to sustainability, the PRI led collective engagements on social issues such as forced labour, and the various roundtables led to the launch of the 'Advance' project.
The project aims to create a standard for investors to model sustainability results in terms of outcomes, promoting collaborative approaches that go beyond corporate dialogue to engage with stakeholders and investors. It is a process, as it is intended to emphasise, focused on collaboration and measurement of outcomes.
Some features of the engagement process in the Advance project:
- Involve local and global stakeholder teams;
- Establish defined roles for participants and investors;
- Include stakeholders, such as NGOs and other entities, to better understand business realities and ESG issues of the territories.
- Diversified composition of investor teams from both global and local perspectives to connect all stakeholders.
They will assess with the investors what the priority issues are, engaging with individual and sector companies, also involving the public policies of the companies that will join the project.
In order to create more and more commitment around the project from interested stakeholders, finally from next year PRI will ask them to join the Public Policy engagement act on a voluntary basis.
This and other collective engagement projects by financial actors are increasingly being promoted at sustainable finance tables in order to replace a top-down logic with the collective participation of all actors involved in ESG investments and sustainable transition.