Faith Ward is Chief Responsible Investment and Risk Officer at the £3 billion Environment Agency Pension Fund (EAPF).
Faith, the EAPF has been an actively responsible investor for over 10 years. To what extent do you think considering ESG factors is central to fiduciary duty?
It is absolutely central. Those with fiduciary duty need to look at all the ESG-related risks and how materially they could impact an investment. That means really looking at the risks and opportunities, not just the traditional metrics.
Do you think the definition of fiduciary duty needs further clarification when it comes to ESG?
The Law Commission review in the UK made it clear ESG risks have the potential to be significant, but reinforcement through other mechanisms would help. The existing regulatory framework, for example, needs to reinforce that message. This reinforcement needs to happen globally.
Do we need more regulation regarding ESG?
A lot of the framework is already there. The critical point, though, is how those rules are interpreted, implemented and reinforced. Making them matter and interpreting them in a more positive manner is an important next step.
What about the definition of corporate Directors’ duty, which, in the UK at least, currently gives them an exclusive duty to shareholders, but obliges them to “have regard” to other matters? Do you think that should place a greater emphasis on other stakeholders?
It would be helpful if this definition was broader to empower more directors to consider how the interests of other stakeholders feed into shareholder value. The current language doesn’t stop this, as some progressive directors in the UK have already demonstrated. Ultimately, it still comes down to corporate culture and its interpretation of what constitutes shareholder value.
Earlier this year the EAPF was part of a group of asset owners that launched the Transition Pathway Initiative (TPI). Tell us more…
The TPI aims to help asset owners understand how the transition to a low-carbon economy affects their investments. It shows whether companies are in alignment with the Paris objective of limiting global warming to two degrees and other public policy commitments to support the requirements of the Task Force on Climate-Related Financial Disclosures (TCFD). It is a simplified, transparent online tool to help investors, particularly smaller asset owners, track carbon transition risk, identify companies that are most exposed to climate transition risk, and to give them a framework for continued dialogue with companies. That should enable investors to be better stewards. The TPI also sends a powerful signal to companies that investors will favour companies that are taking climate risk seriously in the future.
If you could give other asset owners one piece of advice for 2017, what would it be?
Log on and use the TPI toolkit @ www.TransitionPathwayInitiative.org
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund