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This week we speak to Lothian Pension Fund’s Head of Responsible Investment, and well-known figure and podcaster in the UK responsible investment scene, David Hickey.

We discuss:

• Net Zero is very much “of the moment” – but is that a good thing or bad thing?
• Transitioning key sectors (eg utilities, mining), observations
• Reflections on UK government commitment
• Where does responsibility sit: governments vs asset owners
• cop26 – what do you expect to happen over the summer?
• Fiduciary responsibility – does this come after fiduciary, or part of?

Notes on discussion

The Net Zero movement moment – good or bad thing?

Net Zero can focus the mind too much on the mathematical / numerical task of reducing reported emissions, but this only part of a broader picture and needs to be viewed in the round. You can reduce portfolio emissions without having any meaningful effect. We need to focus more on forward looking business alignments. Tools like the Transition Pathway initiative and Climate action 100+ benchmark can really come in handy here.

Observations from key sectors

David’s own podcast episode with the CEO of Anglo American was a very interesting conversation on the mining sector. It showed that globally there are some countries and communities that will be dependent on coal and fossil energy for many years to come. The concept of a just transition needs to be factored into these conversations and the issues are not as black and white as frequently portrayed, there’s a lot of shades of grey. Some crucial sectors like steel and mining are hard-to-abate, it is not just about divesting them.

Asset owners can take a different tack with bond portfolios vs equity portfolios. For example denying debt finance to companies not aligned, but working to transition them on the equity side.

Investing into companies performing poorly with regard to climate and helping them transition could be a very valid, useful and profitable investment strategy.

The UK government’s commitment

From the UK government perspective what’s needed is more detail around some of the proposals in the IEA pathways report for example regarding bans on gas boilers etc. There hasn’t to date been enough political will to make these bottom-up pathways a reality so focus has been on the big headline top-down targets.

We can’t do the top down without getting the bottom up right.

What’s the government’s role in all this?

The big problem is that externalities aren’t properly priced – the market has really failed in this respect.

The government also needs to support the less well-off parts of the population through this otherwise excessive costs get heaped on the poor.

One issue is the alignment of time horizons between politics and climate change, often referred to as the “tragedy of the horizons”.

Related links:

• The IIGCC Net Zero Investment Framework
• The transition pathway initiative tool
• Climate Action 100+

What’s one thing you would like listeners to take away from this?

De-carbonisation isn’t so straightforward. You need to look far more closely at where the assets are and the communities that depend on them. There’s a grey area, a lot of nuance.

What do you think is the most under appreciated thing about investing

People don’t realise how interesting it is - there is so much space for thoughtful, long term analysis and debate.

Recommendations

David hosts the Talking Responsibly podcast

David recommends:

• A Sustainable Future podcast
• Redefining Energy
• Cleaning Up
• Blood on the tracks by Colin Murray

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Each LCP investment uncut podcast is for information and marketing purposes only and does not constitute any form of investment or financial advice or a financial promotion (under the Financial Services and Markets Act 2000). All views expressed by the podcast hosts and guests are purely their own opinions and do not represent those of LCP, its clients or affiliates. Our podcast listeners should always seek independent financial or legal advice before making any financial or investment decisions. Please refer to the Legal Notices section on the LCP website for further information.​