Ignoring ESG leaves clients ‘at risk’, warns BoE senior adviser

Asset owners who do not put enough focus on environmental, social and governance (ESG) issues are putting their clients at risk, Bank of England senior adviser, Michael Sheren has warned.

Speaking at the Sustainable Investment Summit on a personal basis, Sheren stated: “If you as asset owners are not digging deep into ESG issues, your clients are at risk.”

He noted that, in an ever-changing and evolving market and the increased presence of ESG within it, it is becoming more and more important to factor environmental issues into financial decisions to make sure that clients are not left behind.

Discussing net-zero commitments, Sheren added that whilst it was very important to de-carbonise the economy for the fate of the planet, it was also important to understand net zero in context.

“If you’re talking about net-zero carbon what does net mean?” he queried.

“Well, you’re netting against something and the only thing you can net carbon emissions off is carbon credits.”

He noted that net-zero considerations must be done in the context of carbon credits and pointed to the barriers that this context places on achieving net zero, as “the carbon credit market needs to sort itself out”.

Finally, Sheren offered a glimpse of hope for the future, emphasising the potential that the asset managers in attendance had to affect the situation stating: “This is the opportunity of a lifetime if you’re doing your homework and doing your work.”

He pointed to several solutions to the climate crisis being developed and how profitable they are likely to be.

“Things that you should be looking for is when can you substitute something and the company provides their clients with the same experience or better at the same price or better, and you can see that in electric vehicles, you see that in renewable energy, and you need to think about that across the entire economy,” he noted.

“The stocks and bonds you’re investing in, are they thinking how to make their products and their services in a way that’s not only sustainable, but that they’re going to win market share because they are doing it in a way that gets the same or better experience at the same or better price?”

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