Julia Wittenburg

Companies are being encouraged to mitigate rather than adapt.

Julia says COP-26 showed that climate mitigation tends to be the key corporate strategy. “The current climate framework is pushing companies to do more on the mitigation side as opposed to adapting, which is a more sector-specific and regional approach. It’s the small local player somewhere in a coastal area that is forced to adapt its climate strategy rather than a multinational that can diversify its risk more easily.”

But more and more sectors would need to wake up to the need for scenario planning. “Agriculture is going to be hugely impacted by climate change, so there's no alternative but to look at these climate-related risks. And regulation is also key, because fossil fuel companies, chemical companies, construction companies, are all going to be subject to steadily increasing regulation. So you have to adapt.”

The road to 2050: technology may help us to accelerate the pace.

“At the moment we're dealing with what we see and are experiencing. The real adaptation scenarios you will see once companies are really feeling it, in many ways. You can see this in some sectors more than others, but in many ways we are not yet feeling the negative and forceful impacts of climate change yet.”

Julia says the move in the right direction could accelerate. “Technology moves quickly, IT solutions evolve, and it all happens much quicker than regulation. Regulation comes always after. In other words, we're missing a step here, but I think that's the nature of mankind.”

The financial sector has real power to influence change.

“Engagement is a very strong tool to help shift and push companies along on a route that is more sustainable,” Julia says.

“We have a best in class approach in terms of how we select companies that we consider investable, and we have an ESG screen that is adapted to sectors. Post-investment, we look at vulnerabilities where companies need to do better, to try to push them even more in the right direction, such as ESG disclosure and setting meaningful targets. We can provide guidance because as investors, we are in a position to assess where best practices are and where companies need to do better.”

Business has some wider responsibilities but cannot do everything.

Julia says corporate responsibility must have sensible limits. “Where the companies choose to operate, where they pay their taxes and where they employ people has an impact, so of course they have a role to play, but we can never forget that they are also profit-making companies and we as investors also invest for a reason. Corporate culture and governance can have an impact, but we cannot assume companies will take over responsibility for every problem in society, because governments have a role to play too. Should companies be expected to address every single aspect covered by the SDGs? Maybe not.”

But she notes there is a “communication gap” between investors and companies, around what ESG really means. “Some companies and investors separate out environmental, social and governance issues, but for some companies these may be ingrained in their strategy and operations. There are also different ideas about what ‘governance’ is, good management, or something else.”

Small companies in emerging markets can leapfrog development.

“The problem for us with emerging markets and small- or mid-sized companies too is disclosure,” Julia says. “So we engage with these companies to encourage them to look at some of the ESG/non-financial risks, which they may not be talking about in a way that is publicly accessible. 

“You bring it to the forefront, and sometimes that has to do with where sustainability issues are addressed in a company's governance, they may not have a direct reporting structure to the executive management and even less often to the board of directors. This means that the whole issue of ESG in emerging markets has to be approached a little differently.”

But smaller companies can have an advantage, Julia says. “They can switch technologies much quicker than a large, mature multinational. They're much more nimble and can skip certain stages. It requires additional investment but you would see completely different use of technology in some of these companies. It’s quite encouraging that we don't have to go through all the development stages that we go through here in order to make progress.

“Having said that, it's also very political, because awareness and urgency around climate issues may not be at the same level elsewhere, and understandably so, because their economic development is in a different stage. And of course there is the overall conversation about who is going to pay for this transition.”

Divesting won’t change anything but engagement can.

Julia says the firm’s ESG focus already excludes certain business activities. But where conditions change, rushing to sell is not always the answer. 

“We're not producing change by selling an investment, the asset is still there, it is not going to solve the issue. So we are engaged. And I think engagement has a huge role to play and will continue to become more and more important.European regulation is pushing ESG into becoming more and more mainstream, which will help differentiate the survivors and the losers. “There will be a point where investors look at companies and decide which company is sustainable and which one is not. Therefore engagement is a way a company can differentiate itself and a way for us to really have an impact on our investment.”

Solutions to climate change must include enforcement.

“It has to be a holistic approach,” Julia says.  “I've seen this space evolve over the last 20 years and I've become a little cynical. I think we need regulation, but we also need enforcement. We need environmental agencies to be able to fine companies on some of these issues, and it's not happening enough.”

Shareholders meanwhile must “make sure they don't just talk the talk but walk the walk”. Other stakeholders must also play their part. “It can't be the role of financial services alone, it has to be the consumer as well and this goes back to you and I. We need to adapt and change our habits.”