Impact Investing | October 5, 2023

Overheard at PRI in Person: Did someone say systems? 

William Burckart
Guest Author

William Burckart

PRI in Person, the annual confab of signatories of the Principles for Responsible Investment, the over 5,000-member association of institutional investors collectively managing an estimated $121 trillion, got underway earlier this week in Tokyo. This year’s event comes at an interesting inflection point in the arc of responsible investing (broadly defined). 

Coordinated pushback to Environmental, Social, and Governance (ESG) integration in the US is now spreading to other regions around the globe. There is growing awareness that nearly all of the global goals for shared prosperity set in the past few years—from the UN SDGs, to the 1.5 degrees Paris Agreement, and the crossing of 6 of the 9 planetary boundaries—will go unachieved. And countries that once led on advancing the industry (*cough* the UK *cough*) have watered down their ambitions. A proverbial perfect storm is seemingly now visible on the horizon.

Japan leaps ahead

The Prime Minister of Japan, Fumio Kishida, took the stage and announced something unprecedented: to achieve net-zero by 2050 the Government of Japan will issue new government transition bonds—dubbed “Climate Transition Bonds” this fiscal year. 

As Kishada-san remarked: “These bonds will be the world’s first government-issued transition bonds aligned with global standards. This will enable 20 trillion-yen, or $130 billion, worth of advance investments that has a clear strategy and innovativeness, catalyzing private investment for the research, development, and implementation of innovation towards the accelerated uptake of renewable energy, new energy sources such as hydrogen, and industrial facilities and equipment in industries such as steel, chemicals, and automobiles.” 

Japan is taking other steps, too, including raising $1 trillion in public and private financing over the next decade, efforts to mobilize retail and individual investors, better supporting transition-oriented start-ups, clarifying and mobilizing impact investing dollars, investing in human capital, and pushing a policy package meant to channel $14 trillion in household financial assets from savings into investments. 

Japan in many ways is taking a systems approach. The frameworks set forth promise to change the ways investors collaborate, how they invest, and what they invest in—all hallmarks of injecting a systems lens into capital markets.

Risk mitigation for systemic sustainability

The urgency of taking a system-level investing approach in order to drive sustainability outcomes was on full display throughout the conference:

  • Progression pathways. Over the past few years PRI has made a concerted push to encourage signatories to invest for sustainability outcomes (another way of saying systems change)—an objective that has always been consistent with the impact investment community, but one that institutional investors operating primarily through public markets have struggled to make, or at least prove. A series of sessions tackled dimensions of making this pivot, from data implications to disclosure frameworks, a redefining of stewardship, addressing the skills gap, and the introduction of an initiative focused on Progression Pathways that recognizes the wide variety of contexts and approaches with which PRI signatories operate.
  • System-level. Another session on “Responsible Investors as System Actors”, moderated by Susheela Peres da Costa of The Stewardship Centre, addressed the challenges and opportunities of investors harnessing system-level levers. Speakers and delegates exchanged insights on how to define system-level responsible investment practice, how to measure systemic change, and the resources and capacities required. Emma Henningsson of Seventh Swedish Pension Fund (AP7), John Hoeppner of Legal & General Investment Management America, and Zak May of IFM Investors presented on their system-level approaches.

    A group of “provocateurs”—including myself, Rick Alexander of The Shareholder Commons, Brynn O’Brien of the Australasian Centre for Corporate Responsibility (ACCR), and Nao Sudo of Impact Frontiers—reacted to each presentation by being, well…provocative. We raised questions about the virtues and limitations of these approaches.
  • Natural Capital. Maria Clara Rendon, the Director of Responsible Investing for University Pension Plan, a jointly sponsored pension plan in Canada, emphasized on LinkedIn a few of her own takeaways, including how the “conversation around biodiversity is at a stage comparable to where climate change was a few years ago. Momentum is rapidly building as companies and investors increasingly acknowledge our dependence on natural capital.” And: “The journey to establish climate commitments can start with simple steps: setting clear accountability, measuring emissions, tracking data over time, and transparently reporting on progress.”

    Rendon said the International Sustainability Standards Board’s S1, which prescribes reporting on  sustainability-related financial disclosures, and S2, on climate-related risks and opportunities,  “are set to shape the future of disclosures.”
  • Investor engagement. The PRI Academic Conference, a conference track highlighting innovative and leading scholarship on responsible investing, covered topics such as investment and climate risks, corporate political engagement, and culminated in a session on system-level investing.

    The conference, chaired by Caroline Flammer, Professor at Columbia University and Director of the Sustainable Investing Research Initiative (SIRI), featured presentations from Camila Yamahaki of Fundação Getulio Vargas, and Madison Condon of Boston University School of Law, respectively tackling collaborative investor engagement with policymakers and institutional investor industry policy. 

Prime Minister Kishida closed his remarks by emphasizing that responsible investing is fiduciary duty.

“Addressing social challenges through investment would encourage companies to drive change, enhance sustainability of our economies and societies, as well as harness growth potential of our world. This would, in turn, provide long-term financial opportunities to both investors and the beneficiaries who entrust their funds to the investors.”

It would seem that the perfect storm on the horizon is actually the winds of momentum. 

William Burckart is the CEO of The Investment Integration Project (TIIP), and co-author of the book “21st Century Investing: Redirecting Financial Strategies to Drive Systems Change” (Berrett-Kohler, 2021)