Liza Jansen explains our inclusive approach tailored for Asia and Africa.
Responsible Investment is a key part of Prudential’s Environmental, Social and Governance (ESG) strategy to make its business more sustainable for all stakeholders.
As a large asset owner with $178 billion in Group internal funds1 under management, and growing, Prudential is in a unique position to enable a greener future through its investments.
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As part of its unique Just and Inclusive Transition approach, Prudential focuses on being a part of the solution, where it works together with businesses and governments to influence a steady and continuous reduction in their carbon emissions over time. Liza Jansen, Head of Responsible Investment, explains Prudential’s investment strategy:
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Q. What are the main elements of Prudential’s Responsible Investment approach?
Liza: Our Responsible Investment approach starts with screening the portfolio, a step where we look at the type of companies we’re investing in, how they are doing on ESG and whether they have any products we don't want to invest in. This helps us understand the risks in our portfolio.
ESG integration is the next step. In addition to being a problem for the world, climate change is also a financial risk, and we have a fiduciary responsibility to act in the best interests of our policy holders by taking into account all the financially relevant risks.
Through active ownership, we engage with companies, trying to get them to change, and also exercise our rights as a shareholder. We do this by voting on resolutions at shareholder meetings, including on the appointment of directors to their boards.
Capital allocation is another important step, where we try to shift capital from things that we think are unsustainable to more sustainable things.
Then we have exclusions, which identify securities that we don't want to invest in, because the investment doesn't align with our values. For us, that's tobacco, coal and controversial weapons.
There is one other very important step in this approach, which we call market influence. This reflects our efforts to influence industry standards, and to encourage governments to do more on sustainability.
For example, through our membership of the Net-Zero Asset Owner Alliance, we try to raise awareness about issues that particularly concern emerging markets. We try to use our influence within this alliance to get more financing for energy transition in emerging markets.
Q. Does Prudential also work with governments and regulators to influence their approach to sustainability?
Liza: Yes. We try, for example, to influence them to issue more green bonds, or work with regulators for greater disclosures from companies on the progress they are making towards sustainability.
Q. Has Prudential moved away from sovereign debt in a particular country in recent years because of its ESG objectives?
Liza: We have significant investments in government bonds in our markets. These bonds are a way for us to support the country, because we need the government to be able to fund certain investments through their government bonds.
If we stop financing a particular activity that's still very much needed, it's going to be even harder for that company or country to transition towards sustainable objectives. This would not be in line with our approach of supporting a Just and Inclusive Transition.
Take a cement or a steel company as an example. They are very carbon-intensive, but we really need for them to find a way to produce those goods with lower emissions.
Completely divesting from the steel industry won’t result in a favourable outcome, because the steel industry needs investors to stay in business, and for the money to research how they can produce steel in ways that don’t harm the environment this much. This is also true for a country.
It’s also difficult for us to walk away because government bonds serve as long-term assets that can match our long-term liabilities, such as customer claims, in that country.
Q. How have Prudential’s ESG investments been performing relative to the market?
Liza: Up until what we can see now, they have been performing quite well.
I think it's important that we start integrating ESG into a normal investment process. From my perspective, ESG investment risks are not that different from any other investment risks. But these are relatively new, and there are not so many metrics out there that everyone takes into account.
People have increasingly started to realise that a company’s performance depends on how sustainable its business is. And climate change is too important to ignore.
So if a company is responsible for a lot of carbon emissions, at some point, the government could enforce regulations that affect that company. If a company is not prepared, or if it has competitors that are better prepared and have a carbon-neutral solution, then that becomes a serious risk for that company.
Q. Are almost all of Prudential’s investments now ESG compliant?
Liza: Almost, yes. This is what we've been really focused on over the last year. We're aiming to ensure that all our assets meet the minimum threshold on ESG, which means that not only do they not invest in our exclusions – tobacco, coal and controversial weapons, but that they also take relevant ESG risks into account, and they engage with the companies to make their business more sustainable. That's the minimum they have to do, and we're almost there.
For the assets managed by Eastspring directly, we are meeting all of these criteria. So all of these requirements are integrated into the investment mandates and into all the processes, with Eastspring making sure that we're actually doing what we say we're doing.
We have some assets managed by external managers as well, and we’re engaging with them on how they are doing on this front.
1 Amount comprises total investments and cash and cash equivalents held by continuing operations on the balance sheet as of 31 December 2021, and excludes funds managed internally by Prudential’s joint ventures. Source: 2021 annual report