@KPMG.
As we enter a post-pandemic phase in many countries, the question remains for businesses of how they should go about normal business in what has become a distorted market. Kay Swinburne, Vice Chair of Financial Services, KPMG explains now that the dust is beginning to settle, what does normal investing look like?
Swinburne spoke in Clear Path Analysis’s recently released Insurance Asset Management - Europe 2022 report, which featured several market experts from insurance groups including Aviva, New Re., LV+, ReAssure, exploring how to navigate the post-pandemic financial markets and what investors need to know in the recovery phase, including environmental concerns.
“ESG is probably the greatest opportunity we are
currently seeing in the market.”
With these new patterns in the market and ideas, opportunities and challenges will also come to the forefront, including environmental, she says.
“ESG is probably the greatest opportunity we are currently seeing in the market,” Swinburne said. “However, businesses will need to evolve and adapt, which could represent a threat for many, rather than an opportunity. And there is also a risk in focusing on one little bit.”
She says that if a business were to focus on climate change, which has had a larger share of focus in part as a result of COP26, it could be problematic. “While climate is a vital part of the “E” in ESG, it is not the whole story,” she adds. This is especially prescient in 2022, as the investment world gears up for COP15 in April, and the launch of The Taskforce on Nature-Related Financial Disclosures (TNFD) beta framework, which was released in mid-March
Swinburne says that the industry is now seeing the “S” gathering increasing attention and momentum. “The new Lord Mayor [of the City of London], Vincent Keaveny, is spending his mayoral year focusing on social impact, and initiatives like Levelling up and Building Back Better,” she said. “These are just a couple of examples of significant social value programmes that need both public and private funding.”
"Are investors aware of not just where the capital is being used, but how
that business is being run, and how suppliers of that business behave?”
Governance is also going to play an increasingly bigger role, Swinburne continued, and said that the “G” is relevant right the way down to the furthest point in the supply chain. “For example, are investors aware of not just where the capital is being used, but how that business is being run, and how suppliers of that business behave?” she says.
“Looking across the ESG agenda, there are some massive opportunities for differentiation. We have some clients already streets ahead, while others are seeking advice as to how they can position themselves to make the most of the opportunities and lessen the threats in their portfolios over the short, medium, and long term,” Swinburne says.
“Data is a key challenge as there are significant differences globally as to
data quality, metrics and how these are being reported.”
But with this huge leap in ESG adherence and interest also comes challenges and how to overcome those is still up for debate. “Data is a key challenge as there are significant differences globally as to data quality, metrics and how these are being reported,” she says.
Swinburne added that the new International Sustainability Standards Board (ISSB), which has been formed in the same mould as the International Accountancy Standards Board (IASB), is a positive step. “It will hopefully combine many of the existing standards boards’ globally into one entity, meaning we’ll start to see some convergence in standards, thereby allowing a more accurate comparison of metrics globally,” she says,
Alongside this, governments and regulators are increasingly concerned about the lack of transparency and the use of black box technology when it comes to investment ratings, she adds.
“Green bonds are another area where there are likely to be a lot of new
standards to try and ensure people are doing what they say they are doing."
“Agencies simply take data and produce an assessment without any transparency as to the methodology and how or why an investment has received a particular rating. During the Financial Crisis, ratings produced by credit rating agencies were also black box with very little transparency, which had major implications to the instability of financial markets,” she explains and says that as a result, firms producing these ratings are very likely to be regulated going forward and that this will mean the output is more dependable.
“Green bonds are another area where there are likely to be a lot of new standards to try and ensure people are doing what they say they are doing, and not greenwashing,” she adds. “It will be important to make sure that the frameworks are in place so that companies are competing on a level playing field.”
