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Climate change continues to be one of the most crucial issues facing markets, corporations, countries and investors around the world. This episode, Maia Becker, Director, Corporate Governance and Responsible Investment, explore the impact of climate change, and what investment managers can do to mitigate climate-related risks. Maia also discusses the correlation between biodiversity and climate change, and shares some key takeaways from the COP26 climate change summit. [10 minutes, 22 seconds] (Recorded November 24, 2021)

Transcript

Hello and welcome to The Download. I'm your host, Dave Richardson, and we continue our deep dive into responsible investing and ESG with a very special guest, Maia Becker. We had Melanie Adams on who is the Head of Responsible Investment and Corporate Governance at RBC Global Asset Management. Maia is part of that team, a director on that team, with a specific expertise and focus on climate change. Which, of course, is a huge topic within this area of investment management and really of interest to investors more broadly, particularly Canadian investors. Maia, welcome to the podcast.

Thanks so much for having me.

We touched on this a little bit in our discussion with Melanie the other day. But we'd like to do a deeper dive because probably at the top of the list of concerns, when Canadian investors bring up responsible investing and ESG, climate change and the environment come to mind right away. We just had the recent COP26 conference in Scotland. Were you involved in that? What did you take out of what came out of that conference?

COP26 is the annual climate change conference that brings together 195 countries who signed the United Nations Climate Change Framework. This annual meeting was particularly important because it marked the first time that countries were updating their climate pledges or commitments. It was really an opportunity to see if we are on track with meeting the commitments of the Paris Agreement, which is to hold global warming to well below two degrees Celsius, and any specific pledges or commitments made by governments related to that. It really was all eyes on COP26 this year, and we certainly saw some progress, which was encouraging, but also a lot of gaps that still need to be filled and uncertainty as to the direction moving forward.

What role can an investment manager like RBC Global Asset Management play on a global scale around helping to address or move forward some of the things that we want to see coming out of COP26.

When we look at climate change, we really look at it from the perspective of understanding how different climate risks and opportunities can impact our investments. How we look at climate change, therefore, is, we want to understand where are governments moving in terms of their policies and frameworks, the actions they are putting in place to transition different sectors towards net zero. Are they putting in place prices on carbon? Are there subsidies for particular sectors? How are different clean technologies going to be evolving and emerging and deploying? Those are components of the policy implications of climate change that we want to be able to understand so that we can integrate that into our investment decision making. But it also goes beyond that as well. Some of the issues that were being discussed at COP26 also looked at climate adaptation. What are the actions that are needed in order to adapt to the physical impact of climate change; flooding, droughts, wildfires, rolling blackouts that we're seeing in some regions, supply chain disruptions? What are some of the investments and implications of climate adaptation? And then, from an investment perspective, how does that impact issuers? How does that impact different sectors and how does it impact our portfolios?

What's incredible about this series that we're doing with Melanie, yourself and Jeremy Richardson that we had on, is the breadth of this topic and the breadth of the risks and what we need to think of to really manage this as an investment manager. I'm kind of learning along with the audience here, so I hope you'll forgive my questions. I usually come from a base of really solid knowledge in the area that we're discussing. But again, I'm learning along with everyone here. We recently released a net zero statement out of RBC Global Asset Management. What was that? From your perspective, why is it so important as an advocate for these issues?

First of all, I think it's important for people to realize that climate change has long been part of our approach to responsible investment, our approach to climate change, which is our climate change strategy, and lays out our commitments and actions to climate change. We published that in 2020. But you're right, just several months ago, we published our net zero ambition statement, and we felt that it was particularly important for us to confirm and state RBC GAM support for the global goal of achieving net zero emissions by 2050 or sooner, as well as some of our commitments and actions related to that. The expectation we have of issuers that they evaluate climate risk and opportunities. How they impact their strategy? How they impact their bottom line? If it's financially material to the company that they have in place, net zero targets and robust action plans for meeting those targets. Ourselves as an asset manager, our commitment is that we are measuring and monitoring the alignment of issuers as well as portfolios to net zero, disclosing that in our annual climate report or TCFD report. But then we're also using active management and stewardship for engaging with companies on these issues. If there are companies that we feel that are lagging, that climate change is material to them and they don't have in place a robust strategy, that's part of the opportunity we have as well as to sit down with management, sit down with the board and talk about what those action plans are, the targets, how they're measuring progress and ensure that long-term sustainability of those issuers in which we're invested.

Wow. Again, just incredible. A couple of things that you've written about recently; one is biodiversity. Talk about the connection to everything we've discussed and biodiversity.

It's a great question because it can seem like such a different topic. How are they connected? Biodiversity impacts climate change, climate change impacts biodiversity. It goes both ways. Biodiversity plays a really important role in terms of encouraging climate mitigation. Forests, soil, biodiverse ecosystems, sequester carbon. That's one way in which it can impact climate change in a positive way. Biodiversity can also encourage climate adaptation, that ability for our ecosystems to be able to absorb water to limit flooding, which requires functioning wetland. All of those ecosystem functions and biodiversity contribute to that. On the other hand, climate change itself, which is rising temperatures, can impact the biodiversity of marine ecosystems, but also land ecosystems and can impact and contribute there to biodiversity loss. They really are important pieces that go together, which is why even in the Paris agreement, which was part of COP26 and a focus there, there is a focus on effectively functioning ecosystems, biodiversity, and how can we restore those ecosystems. It's really a key piece to the climate change puzzle. I think in the years to come, we're going to continue to see more focus on how we prevent biodiversity loss as we continue to see that connection between biodiversity and climate change.

And so, the connection to investments is that we need to understand how companies are contributing or perhaps hurting biodiversity and climate change; how they're creating risks for those companies that we may have invested in? Is that the right way of thinking about it?

Yes, absolutely. It's thinking of them as nature-related risks. You can think of it in the perspective of natural capital, just like there's human capital for a business, there's natural capital as well. For certain companies— think of a food company, for example, or think of a company that manufactures beverages—, water and effectively functioning water ecosystems are going to be very important for their ability to produce products. You think of a company that needs to ship products across the world; functioning supply chains will be important to them and ensuring that their products are being produced in a region that has consistent supply of the raw materials they need in order to produce those products. Those nature-related risks and opportunities, certainly, as the physical impacts of climate change become more intense, will become even more potentially material to companies in certain sectors, beverage companies, food companies, agriculture, forestry, mining and so on.

What's great is that listeners to the podcast can find your writings and your content on the RBC Global Asset Management website. We've got a whole area of the website dedicated to responsible investing and ESG. Maia, fascinating conversation. I learned a lot today. It's great to have you as part of the team, something I think you should be really proud about in terms of the contribution you and the team are making to the firm and for investors and really for Canadians, as a significant investor in the Canadian landscape and the impact that you can have with a deep understanding of all these issues. I know I'm mangling this because again, I'm just learning. But, Maia, thank you for your time today. That was just fantastic.

My pleasure. Any time, Dave.

Disclosure

Recorded: November 24, 2021

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