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ESG

Investors more focused on impacts, risks to portfolio companies — PLSA

Investors are more focused on the social impacts of AI and the risks of plastics and microbial resistance that were once under the radar.

Investors are paying closer attention to the social impacts of artificial intelligence on the economy as they engage with portfolio companies, while the risks of plastics and antimicrobial resistance in the supply chain were also highlighted by delegates in a panel on under the radar risks at the Pensions and Lifetime Savings Association's annual conference Thursday in Edinburgh.

Speaking on a panel Thursday, Carlota Garcia-Manas, senior investment stewardship analyst for Church Commissioners and Church of England charitable endowment, which has 8.3 billion ($10.9 billion) in assets, said the fund was considering the investee companies' response to issues such as modern slavery, living wage and the impact of artificial intelligence on unemployment, warning that "AI was identified as an ethical issue."

The Church of England thinks of factors such as unemployment when engaging with companies on how they integrate the impact of AI as a potential risk, Ms. Garcia-Manas said.

Carola van Lamoen, head of active ownership at Robeco, speaking on the same panel, agreed, adding that Robeco identified the social impact of AI as a financially material risk. But she said, "There is a growing awareness of companies what is financially material."

Ms. Garcia-Manas added that among other factors that have come to the forefront of the Church of England's engagement policies was inefficient tax policies, which she said could damage a company's reputation or its own infrastructure, but gender diversity remains of focus. "From 2019, we are newly voting in U.S. and Europe against chairman of a nomination committee if at least one women is not on the board," she said.

Maria Lettini, director of the Farm Animal Investment Risk and Return Initiative, an investor initiative that aims at including factory farming on the environmental, social and governance agenda, called on investors to consider the effects and economic cost of antibiotic resistance globally, which could affect global output by $100 trillion by 2050. Over the past three years, she said, 18 of the 20 companies FAIRR has engaged with enacted some kind of policy to address the use of antibiotics in their supply chain, up from 1 out of 10 companies when it initiated its stewardship.

"Investors can ask companies in the portfolio to reduce antibiotic use in their (supply) networks," she said, adding, "it could be highly powerful to mitigate the risk of the (future) impact on the portfolio."

Similarly, Ms. van Lamoen said Robeco has been focusing on reducing the use of single-use plastic. She said global production and consumption of plastic has increased 20-fold since 1960 to 311 million tons and is expected to double again in 20 years, with only 20% of plastic recycled. It is increasingly financially material, and Robeco is engaging with companies that use or produce plastic on the ESG impact, she said.