Enjoy this interview with Fiona Reynolds and Esgaia's Head of Stewardship Success, Rickard Nilsson, where Fiona shares her story and learnings from decades in finance and responsible investment. Today, Fiona is an independent director and advisory board member working across the business and investor sectors on ESG and sustainability issues. She served as the CEO of the UN PRI for just under a decade, stepping down at the beginning of 2022.
Q: As the former CEO of UN PRI, you are certainly a well-known name in the industry. Today, as an experienced Board Chair, Director & CEO, focused on advancing sustainability, what drives and motivates you?
My motivation has always been about how we create capital systems that benefit the majority of the population and not just those sitting at the top of it.
I started my career working in the pension sector in Australia. Compulsory superannuation or private pensions for working Australians came into being in 1992. These pension funds (called superannuation funds in Australia) were designed so that all profits were returned to members, set up as trusts with the board of trustees having equal representation from both employers and employees or their representation. Today the assets held in those funds are over $3.3 trillion (AUD).
Across the globe in the largest pension markets of Australia, Canada, Japan, the Netherlands, Switzerland, the UK, and the US approximately $US45 trillion is held in pension funds, which is more than 60 percent of the GDP of these countries. When we think about the size and scale of those assets, we must remember that this large pool of capital is owned by everyday working people, therefore it stands to reason that it should be managed in a way that serves their interest. This led to my interest in ESG issues.
Pension funds invest capital for the long term and they must consider the risks to those assets over a multi-decade time frame and for a multi-generational cohort of members. I also believe that pension funds must think about the world into which their members will retire and not cause harm and damage through the way in which they invest, through damage for example to people or to the planet.
As large holders of capital, pension funds have the power to shape the way they invest, through their investment choices and their stewardship. Money talks and pension funds can help shape the future. Pension funds have a major role to play in our economy, but also in the outcomes. We must find the right balance between people, profit, and planet, all can be aligned in my view, but it takes new ways of thinking and a move from shareholder primacy to balancing the needs of all stakeholders. This is a different way of investing and why the responsible investment or ESG movement was created.
Q: Under your leadership at the PRI, the initiative grew to become the world’s biggest responsible investing initiative, today with over 5,000 investor members representing €130 tr in AuM. First of all, hats off to such an amazing journey! In retrospect, what are you most proud of?
Thank you, I am immensely proud of my time at the PRI, and the role that PRI has played in promoting responsible investment. It of course was just not me on my own, many have contributed along the way, including its founding executive director, James Gifford and I hope many others will continue to contribute to its growth and success.
When I first started at the PRI in 2013, I was surprised to see that despite the very big threat that climate change posed to investors, few investors were really taking it seriously or incorporating climate issues into their investment decision-making, so in 2014 we created the Montreal Carbon Pledge, where investors committed to measuring their carbon footprint. Today that does not seem very revolutionary, but a decade ago it was and of course, the beauty of this pledge was once you have measured your carbon footprint you have to actually do something to reduce it.
The next phase included the creation of initiatives such as Climate Action 100+ and other major climate initiatives such as the Net Zero Asset Owner Alliance. I was also determined to see S issues rise up the agenda and for investors to understand the interconnections between the E, the S and G. For example, whilst climate change is an environmental issue, it is also an economic issue, and it is most definitely a social issue and at the PRI we worked with others to promote the need for a Just Transition.
Q: With responsible investment ‘growing up’, its complexities, limits and possibilities have come under increasing scrutiny. Right or wrong, it’s impacting industry practices, how do you see it shaping investors' stewardship practices?
Investment stewardship is a very important part of responsible investment and one of the key levers that investors have is their ownership in companies. Through their engagement and voting rights they help shape the direction of a company. Stewardship however needs to be meaningful; it needs to be more than a tick-box exercise so that you can report that you have been to X number of meetings throughout the year. Stewardship needs to be about outcomes and investors need to have a clear plan for their stewardship activities, including an escalation plan for when engagement is not working. To me, we see a lot of engagement activity, but we are not seeing directors who aren’t taking action be voted off boards in the way I would have expected.
Q: Sometimes, efforts made can feel rather hopeless against the never-ending stream of climate troubles and social injustices, in such moments of disbelief, what would you do?
You can definitely feel like – what’s the point of it all sometimes, but in times of disbelief, I think about where we would be without investor action on ESG issues, as I am convinced that we would be even further behind the curve than we are today. Investors are not just influencing company behavior they are also influencing policymakers; they are influencing government actions and we are seeing far more cooperation between the private and public sectors.
Change is of course not happening at the scale, or the pace required, and we cannot just sit back and rest on our laurels, we need to escalate our actions. There is still so much that needs to be done and we have only just touched the surface. I also think back to when I started working in the responsible investment space, when ESG was seen as a niche issue, a nice to have – today it is a mainstream issue and a must-have. Change can happen, just not always in the time frame you would like, but once it happens and becomes the norm, then it is likely to remain in place – and that is success.
Q: One approach I can think of is to focus on your sphere of influence and how stewardship resources are allocated (and optimised) across different stakeholder groups. From your experience, how should investors think about this?
This is why I strongly believe in collective action, no one investor can move the dial on their own, it is through working together that we can make a difference, expand our sphere of influence, and use our resources wisely. Investors can also learn from each other, particularly when they invest globally but might only be headquartered in one country where they cannot possibly, be on top of every issue on every topic in every country. It is why organizations like the PRI were created and continue to be important.
Q: Time for final remarks, if you could ask for one thing of investors, what would it be?
If we really want to solve the climate issue, if we want to solve human rights violations, if we want to meet the aims of the SDG’s, then capital needs to move from developed to developing countries, from the global north to the global south. This is not happening anywhere near the scale required and as investors we need to work on ways to develop the standards and the investment vehicles to make this happen, otherwise we will not reach net zero, we will not solve the climate crisis. We have to remember the world is interconnected.
Fiona has 30 years' experience in the financial services, superannuation and pension sector. She joined the PRI from the Australian Institute of Superannuation Trustees (AIST), where she spent seven years as CEO.
Today, Fiona is the Chair of the UN Global Compact Network Australia; she also serves on the Board of Frontier Advisors and the Australian Sustainable Finance Institute. She is on the Advisory Boards of Quinbrook Infrastructure Partners, Affirmative Investment Management, and ROC Partners. She chairs the ESG Advisory Committee for Qualitas and is on the think tanks Climate Catalyst, and the UBS Sustainability and Impact Forum, as well the Advisory Committee for the NSW Commissioner for Anti-Slavery and the Australian Human Rights Institute.
Fiona was named one of the 20 most influential people in sustainability globally by Barron’s magazine and has twice been named one of Australia’s one hundred women of influence by the Australian Financial Review.