Wim van Hyfte discusses the power of divestment as an ESG tool for investors

Ahead of the Sustainable Investment Forum Europe taking place in Paris on the 12th March 2019, we caught up with Wim van Hyfte, Global Head of Responsible Investments and Research at Candriam, to discuss the power of divestment as an ESG tool for investors.

Could you tell us a bit about Candriam's main areas of focus right now in ESG and sustainability?

At the end of 2018, we published a paper on Green Metals that was very well received by our clients and the investment community. In this paper, we argued that investors concerned about ESG issues cannot simply ignore the mining sectors for environmental and human rights reasons. We showed that this sector was essential in supporting the transition towards a low carbon economy within the transport sector. This sector is undergoing a massive transition from petrol and diesel engines to cars powered by electric motors powered by large batteries. ESG investing provides us with analytical tools to better assess the risks and opportunities of each mining company in order to better inform our investment decisions. Some of these companies are well positioned to become major suppliers to the automotive industry whilst adopting a responsible approach to manage the negative externalities their activities can generate.

We continue to bring out other research materials to feed the discussion around ESG investing and make the case for the inclusion of these factors by all investors.

More broadly, what are the biggest sustainable investment trends you're seeing in 2019?

Sustainable activism - We will see more companies with high environmental impact announcing that they will target emission reductions following intense pressure from responsible investors. Last year, Shell announced that they would set CO2 emissions target and link them to management bonuses. This year, Glencore, the largest global mining company, announced that it would cap its coal production. Candriam is part of these engagement campaigns and will continue to push companies to commit to the 2-degrees scenario in line with the Paris Agreement.

Regulation - The first part of the European taxonomy of environmentally sustainable activities will be published towards June 2019. The taxonomy will feed into further measures aimed at providing a common framework for sustainable investing. Exposure to Climate Change and management of waste and limited natural resources are already at the heart of Candriam’s ESG analysis. We therefore feel well prepared to provide investment solutions in line with the taxonomy.

Digital & data privacy - Digitatalisation will continue to disrupt well-established sectors of the economy whilst the continued integration of personal data within cloud structures increases the risk of breaches to data privacy. It is therefore essential for investors to carefully assess how companies manage personal data, assess their processes, degree of preparedness, in order to minimize this risk.

Candriam announced last year that you will stop investing in coal and divest some of your investments with exposure to coal. How has this been received and can you explain how divestment can serve as a powerful ESG tool for investors?

Generating electricity from coal releases at least 40% more greenhouse gas in the atmosphere than using natural gas. Furthermore, today, and for the foreseeable future, there is no economically viable solution allowing for these gases to be captured and stored safely for centuries. On top of that, several major technologies to produce power from renewable energy sources, in particular photovoltaic cells and wind turbines, have seen their costs dramatically drop over the last few years that they are now competitive with coal.

We therefore think it makes neither economic, nor environmental sense for investors to continue financing thermal coal extraction or coal power generation.

You are kindly supporting our upcoming Sustainable Investment Forum Europe on 12 March as a headline partner. What attracted you to the event?

As a leader in responsible investment, Candriam aims to play its role as a prescriber and influencer. Responsible investment is a subject that remains in the making despite the immense progress made in recent years, particularly in continental Europe. Because it brings together a high quality audience with the objective of making it a true professional community, the Sustainable Investment Forum is an additional lever for change that we are delighted to support.

You're speaking on a panel at the event about integrating ESG into decision-making and analysis. Could you explain very briefly why this is an important topic and what you're planning to talk about?

As I have already alluded to in the first question, for any sector considered by investors consider, ESG factors can help shed light on potential risks and opportunities that might otherwise be ignored. Such integration, however, has to be done in a manner that acknowledges the specificities of each investment strategy and asset class. For instance, at Candriam, we use a specific set of ESG factors when analysing emerging market equity issuers and in part different factors, or a different focus, for developed market equity issuers. In emerging markets, questions relating to governance are particularly acute and deserve a proportionally greater attention than in developed markets. In the latter, apart from governance, we dedicate a significant amount of resources on the analysis of each company’s business model’s alignment with global sustainability trends, such as Climate Change. These trends have the ability to create or destroy markets, and lead to permanent impairment of capital at company level, or conversely drive company top line growth.

Candriam is the Headline Partner at the Sustainable Investment Forum Europe, taking place on 12 March 2019, find out more here. 

Visit Candriam’s website here.