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The Universal Owner Perspective: A Conversation With John Howchin

Enjoy this interview with John Howchin and Esgaia's Head of Stewardship Success, Rickard Nilsson, where John shares his knowledge from 25 years of working with responsible investing. Today, John runs the advisory firm Transition INC., with official assignments as the Head of European Operations at BanQu, and as the Global Ambassador for the UN-convened Global Tailings Management Institute. He served as the Secretary-General of the Council on Ethics for the First, Second, Third and Fourth Swedish national pension funds for just over a decade, stepping down in 2022.

Q: John, looking back at your extensive career in finance and sustainability, what comes to mind?

My career has truly been a rewarding and exciting journey. I’ve had the pleasure of working with great smart people, where we together have contributed to establishing the concept of responsible investing and the importance of it for investors.

When I started out, many of the issues facing companies and investors were not as tangible as they are today. We are now living the consequences of climate change, and other sustainability challenges. It’s not strange then that the finance industry, similar to other industries, recognise they have a responsibility to understand these issues for better, more informed decision-making.

With this in mind, as we discuss different transitions, it’s important to understand and be realistic about timeframes. For example, early on in my career, at ABB, we sent electric motors to Volvo as part of its electrification journey, but it’s not until now that electric car-making is really taking off, 35 years later. Similarly, I visited Vestas in the beginning of the 90ies, and now, 30 years later, we finally reached the point where the industry is achieving cost parity with efficiency levels to meaningfully drive change at a global level. 

Acting with the urgency needed to address challenges today will require that we recognise that global problems require global solutions. We need collaboration at scale (read industry initiatives, public-private partnerships, blended finance etc.) and to focus deployment where it truly matters, where the utility is the greatest. 

Q: You had a long tenure (10+ years) as the former Secretary-General of the Council on Ethics for the 1st, 2nd, 3rd, and 4th Swedish national pension funds, what did you learn from this experience?

I had a great time at the Council in a fascinating role! Much of my work over the years focused on investment stewardship, and the responsibility and incredible power that comes with the ownership of companies.

Intellectually it was very rewarding. The breadth and width of issues, having to deal with everything from conflicted regions to human rights violations and environmental disasters taught me a lot. Regardless of the issue, it’s been great to see how investor interest and engagement have picked up and gone from a marginal phenomenon to center stage for investors. 

It’s also been a lot of work, managing differences in opinions, and addressing a broad set of stakeholders. Altogether though, it’s been a fantastic journey, and I’m super proud to have represented the AP funds in a global setting, acting as a sort of “diplomat” and messenger when traveling, performing site visits, and so forth.

Q: The Council’s approach is to engage companies on norms breaches and to promote sound practices across proactive thematic engagements, what’s your view on the effectiveness of this approach and the dialogues?

Long before the Ethical Council was created, in the early 00’s, the AP funds gained a reputation of engaging with companies. With Sweden’s strong reputation globally acting as a door-opener, the funds have been able to “punch above their weight” so to speak. 

The focus on compliance with international norms and conventions has helped create a hygiene level of acceptable behaviour for investors globally. However, we must remember that ethical and responsible companies are a living process, and many lose momentum, why constant work is needed to align with evolving best practices. Helping to raise such minimum standards should be the starting point for most investors I believe. 

As long-term owners, with intergenerational commitments and time horizons, engagement needs to be a partnership. It should be about helping companies address issues and make progress (within acceptable timeframes), understanding that the journey and work continues and can be revisited over time. 

Q: Collaboration stands out to me as perhaps the most important ingredient in investor stewardship. Under the right circumstances, it can e.g. increase influence, reduce duplication, and divide resources, what have you learned from collaborating extensively with others? 

Having engaged hundreds of companies through the years, I believe the most important thing is showing up, wanting to participate and contribute. Creating a space for learning and a strong group dynamic is essential, you should seek out the right mix of investor sizes, regional representation, and expertise. 

Most investors understand that oftentimes the issues we’re engaging companies on individually are actually system-level issues, better suited to system-level responses and solutions. Thus, we need to have realistic expectations of what we hope to achieve by ourselves versus in collaboration, where the latter is naturally when we can hope to achieve the most.

Q: This leads me to your work with the Global Tailings Management Institute (GTMI). Following the disaster at Brumadinho, an initiative representing actors across the value chain was founded in 2019, which managed to implement a Global Industry Standard on Tailings Management (GISTM) and later the GTMI. What would you attribute to its success?

Well, it became apparent that the engagement with Vale (following the Brumadinho dam collapse), wasn’t working very well. We saw the need for a global framework, which could be applied across the industry. With support from the finance industry and investors globally, we enabled a triparty discussion between UNEP, the International Council on Mining and Metals (ICMM), and the UN PRI, convened by myself and Adam Matthews. 

This approach was key to unlocking the tensions sometimes found between universal owners and individual companies. By working collaboratively, across the value chain, toward a set of global standards, we have created a level playing field, which would have been impossible by ourselves.

Q: Your answers often highlight the system perspective; the need to address and find solutions to root causes on a system level. How can investors incorporate this into their stewardship programs?

In most places, we need simple, straightforward frameworks and structures, aligned on a global level, regardless of region or country, to avoid “arbitrage situations” where companies explore differences for their own gains. 

Don’t get me wrong, there are ambitious actors, but oftentimes companies and their industry organisations focus on the lowest common denominator. Therefore, they need the pull from others, e.g. via FN, the EU and similar bodies, which can significantly streamline processes and standards development. The best way to achieve this in my opinion is again to collaborate extensively across value chains, and ensure “boots on the ground” to fully understand the issues at hand and what the reality looks like. Then, based on that reality, you build the structures, bottom-up, not top-down.

Q: Time for final remarks, if you could ask for one thing of investors, what would it be?

Reaching solutions like the aforementioned GISTM requires an enormous amount of energy, activity, and willpower. In many ways, it represents the frontline of global development, however, in many areas, much work still lies ahead of us. For it to succeed, you need collective backing and help from institutions, where company boards, CEOs, investor committees, and personnel feel empowered and supported in this work. 

Investors have the right and ability to influence company practices to help drive positive real-world outcomes. With that comes responsibility, which requires investors to prepare themselves as it regards policies, processes, governance structures and human resources. This lays the groundwork for value-creating dialogues, where the collective power of investors has an important role to play.

This interview has been transcribed from a recording.


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