Welcome to ‘The ESG Crunch’ with Tom Allport, a Q&A focused on Sustainability & ESG in the Built Environment.
This Q&A series is an opportunity for our Lead ESG & Sustainability Consultant, Tom Allport to discuss all things Environmental, Social, and Governance (ESG) with some of the leading players and decision-makers in the space. Each week we will ask burning questions centered around the critical role of ESG in shaping business strategies, fostering sustainable innovation, and driving societal impact. This series will provide a platform to share insight into how these leaders are integrating ESG principles into their organisations, navigating challenges, and advice for aspiring entrepreneurs looking to join the ESG & Sustainability industry.
Aegon Asset Management is an active global investor, managing and advising on assets of USD 321 billion* for a global client-base of pension plans, public funds, insurance companies, banks, wealth managers, family offices and foundations.We are active, engaged and responsible investors. Weconsider investing responsibly a part of our investment philosophy and process as we believeresponsible investment practices are critical to securing long-term value for our clients.
How did you find yourself working in the ESG & Sustainability space?
I grew up in New Zealand and its difficult to grow up in the place like that without gaining a bit of an interest in the environment and sustainability. Geography field trips were always a highlight of the school year and led me to pursue a degree in physical geography at university.. I got more interested in environmental management which is the intersections of society with the physical world and the relationships that develop between them. From there I found myself working in a research team for a global real estate advisory firm. This role in Responsible Investment at Aegon AM popped up on my LinkedIn and looked like the perfect opportunity to combine my interests in real estate investment and sustainability.
What does your role at AEGON entail?
I work in the Responsible Investment team, working closely with fund managers. The most important part of my role is the assessment of companies’ eligibility for inclusion in our range of Responsible Investment funds. I focus on our Global Sustainable Listed Real Estate fund, but I also help with assessing companies for our climate transition funds. At Aegon AM, we take a bottom-up approach to analysing companies’ sustainability credentials, looking at both their products and practices – what they do and how they do it – and how the company contributes to answer the big sustainability questions of today and tomorrow. One of my favourite parts of the role is the engagements we undertake with the REITs we invest in. Sustainability analysis almost always reveals things a company could be doing better and its rewarding seeing these companies improve over time after the productive conversations we have.
Could you share some insights into the ESG & Sustainability priorities at AEGON?
For the sustainable range of funds we have at Aegon Asset Management, the ultimate aim is to produce excess returns by investing in companies with positive real-world sustainability impact. All the companies we invest in must have a strong governance foundation. The sustainability impact of these companies is allocated to one of six pillars we believe we can have an impact through investing in public markets – climate change, eco-solutions, resource efficiency, health & wellbeing, inclusion, and sustainable growth.
With ESG being so broad across industry and so nuanced within Real Estate, what specific focus do you and your team have?
While I believe real estate has an impact across a vast range of ESG issues, decarbonisation of building portfolios remains the biggest focus of our RI efforts. Everyone in real estate knows the 40% emissions number – it is the most critical aspect of real estate. As a globally focused fund, we look at companies from jurisdictions with a wide range of sophistication in their climate ambitions and performance. So, we spend lots of time engaging with management and ESG teams to encourage companies to increase their climate ambitions to help achieve the Paris commitments. Acknowledging the challenges in different markets, sometimes this is asking companies to commit to a Net Zero 2050 ambition and explaining why it’s important. At other times, we get into the nitty gritty of what levers companies plan on activating to decarbonise in-line with their net zero pathways.
What unique challenges and opportunities do you see with ESG in the UK compared to other global regions?
The UK has found itself in the position of being a potential global leader on net zero. The UK’s leadership have seemed genuine in their embrace of decarbonisation, being the first major economy to legislate for net zero and setting ambitious targets for 2030. We’re at risk of losing this place in the world. There are some really great commitments like 600,000 heat pump installations per year, the phase out of fossil fuel vehicles by 2030, and the decarbonisation of the electricity system by 2035. But there has also been a lack of progress on some of these and wavering commitment on others. With the US and its Inflation Reduction Act, and the EU’s Green Deal Industrial Plan, the UK is at risk of being pushed aside and missing opportunities in green investments.
Globally there is a skills talent gap in the ESG & Sustainability Real Estate sector, what skills are particularly important when developing and implementing the AEGON ESG Strategy?
The important skills in ESG are the same skills that make a good analyst – curiosity, cynicism, and communication. Anyone working in ESG will tell you how quickly the industry changes on an almost daily basis, even ignoring regulatory changes. Curiosity is key to the constant learning process about new technologies, standards, and sustainability solutions. A healthy dose of cynicism is also important – there are a lot of claims out there in the ESG space and not all are as good as they seem at first glance! Scratching the surface of some of the claims of ESG credentials or performance sometimes reveals a not so rosy picture as painted in glossy ESG reports. Equally as important as analysis itself is how you communicate your findings and opinions; you’ll find yourself having to convince doubters occasionally. This could mean anything from why ESG and sustainability can play important roles in the investment thesis and process, to justifying the decision to exclude a company from sustainability funds based on your research.
What challenges and opportunities does AEGON have with ESG & Sustainability?
Like all investment managers, regulations like SFDR get a lot of attention here. Different regulatory frameworks are emerging and evolving around the work which could lead to increased confusion around sustainable investing – one of the things they are trying to fix. But there continues to be good demand for sustainable investment products. The opportunity is there to grab that demand with a clear and transparent sustainable investment framework.
How have you found the market in 2023?
In the listed real estate market specifically, the ESG stories we’ve seen this year have been positive overall. Across almost all geographies the companies we look at have improved their ESG credentials. In Japan for example, we’ve seen a big positive shift in the level of ambition on carbon reductions for a number of companies. There’s also been a welcome increase in female representation on boards following some new regulation. In more mature markets like the UK where highly ambitious targets have been the norm for a few years, we have seen solid progress made across all ESG topics and sensible tweaks to disclosure – for example, increasing target boundaries to cover key scope 3 emission sources or efforts to formally quantify the social value created by business activities. Overall, things seem to be heading in the right direction (which is not something to take for granted!).
Finally, what advice would you give to aspiring ESG & Sustainability talent in today’s market?
While it feels like its talked about everywhere, the ESG & Sustainability talent market is still quite new relatively speaking. If you see an opportunity to incorporate ESG into your current role – take it! Being passionate about sustainability topics and being able to show that passion will go a long way in the ESG world. The usual advice is always a good place to start as well: find a unique edge to bring to a role and show you understand the business. Don’t be afraid to ask questions.
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