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Fiona reflects on how investors’ thinking around sustainability needs to evolve, and why the “S” of Environmental, Social and Governance (ESG) needs more development.

If we consider it from a financial point of view, I see sustainability as balancing people, profit, and planet. It involves integrating ESG factors into your investing thinking and risk frameworks as well as balancing the needs of current generations against the danger of doing damage in the future.

At the most basic level, it means doing no harm.

When I started at the PRI, very few investors thought about climate change issues. My aim was for us to mainstream responsible investment decision-making.

To do so, we launched the Montreal Carbon Pledge in 2014. It was the first time that global investors had measured their carbon footprints and felt the pressure to do something about it. We knew what stocks drove the most carbon emissions, so we started the Climate Action 100+ initiative. It has become the largest engagement between corporations and investors on one topic, incorporating USD 70 trillion in assets under management with over 700 investors. From there, we launched the Net Zero Asset Owners Alliance and other initiatives have also focused on the engagement side.

I also tried to bring more focus to human and labor rights issues. When people talk about ‘S’ issues they often only discuss it in terms of diversity and having more women on boards. While that is very important, I think an even bigger issue is modern slavery and human trafficking.

It’s shocking: there are more people living in some form of modern slavery today than at any other point in human history, including when slavery was legal.

It exists in plain sight, in the developed as well as developing worlds. We often want very cheap products that come at the expense of exploiting other people.

I previously chaired the board of the Financial Sector Commission on Modern Slavery and Human Trafficking with the UN University Centre for Policy Research. In 2019, we created a blueprint on what the finance sector needed to do to avoid supporting modern slavery. The banking sector has a key role to play, as people who do wrong need to hide and launder their money somewhere. Also, private and institutional investors need to be aware and consider these issues in their investment decisions.

If you want to solve the issue of climate change and meet the UN’s Sustainable Development Goals, the most urgent needs are in the developing world.

Western countries may meet their net zero targets, but this will not do much if the developing world cannot meet its targets too. And right now, the gap is widening rather than narrowing for developing countries.

We need to focus more on how to successfully invest in solutions within the developing world to create opportunities, jobs, and prosperity. To do so, we need to bring development finance institutions around world together with public and private finance. You need the public angle because pension funds and investment managers need to make a profit and they are reluctant to invest in some developing nations with corruption problems. But we need to find solutions to effectively address those challenges.

What I would like to see is government saying to investors, “this is what we’re prepared to do, and if you invest in these projects with private capital, we’ll put all the due diligence in place and be a financial partner, or offer you certain guarantees, absorb a percentage of losses, or a provide a minimum return rate”.

I’m putting my money where my mouth is and am about to chair a new entity set up by [UN-linked international organization] Interpeace, called the . It looks to tackle issues on how to invest in developing countries in a way that solves developmental problems and enhances peace in frontier and emerging economies. We will look to develop standards and frameworks that help to enhance sustainability-friendly projects and bring local communities along with them.

Unfortunately, I’m increasingly skeptical that we can keep the world to a temperature increase of 1.5 degrees Celsius by 2050.

The private sector has stepped up over the last 10 years, but we are still not doing enough at the scale and urgency required. Added to that, you have the problem of an anti-ESG backlash in some countries. It’s slowing down our ambitions because people are saying it has become too difficult. But it will only get harder.

We’re seeing the impact of surface temperature increases already, even though we haven’t even experienced a one-degree rise. And developing regions often have no access to air conditioning or fresh water. So, we will have more climate refugees in the future and that will cause yet more political tension, as we have seen in the UK.

Individuals want to feel they contribute to solutions. But the heavy lifting needs to be done by governments, corporations, and investors. To minimize the damage done by climate change we need to find and invest in more solutions and not overly focus on disclosure and compliance alone.

The problems we face can be solved. There is more money in the world than we know what to do with, but we need to find the will and structure to put it to work in the most constructive ways.

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