EU taxonomy for sustainable activities to ‘determine discount rates that investors apply,’ says M&G Investments
The EU Action Plan on sustainable investing should become critical to how investors value companies, according to Ben Constable-Maxwell, head of sustainable and impact investing at M&G Investments.
Speaking at the ESG Integration Forum – Europe, hosted by IR Magazine and online sister publication Corporate Secretary, Constable-Maxwell said: ‘The action plan is going to be such a central driver of the integration of ESG and sustainability in the market generally.’
The EU Action Plan has broad aims to direct more investment toward sustainable activities, improve the management of ESG risks and encourage a long-term approach to investment. A key element of the project is the creation of a classification system, or taxonomy, for sustainable activities.
For Constable-Maxwell, the new taxonomy – while complex and still in development – should ultimately be ‘very impactful’ at changing corporate behavior.
‘When it’s right, it will really define what is sustainable behavior and [what isn’t],’ he said. ‘I think companies that align with that program will be advantaged and investors will be more willing to invest in them. I think it’ll start to determine discount rates that investors apply to companies and sectors – so we think it will drive change.’
Another important element of the Action Plan is the drive for better disclosure by companies and investors, said Constable-Maxwell. ‘When we have to report more clearly on our ESG approaches and performance, we have to rely on companies to disclose that to us as well,’ he explained. ‘So that will be a huge driver, again, of behavioral change – the need to disclose and be more transparent about the risks and opportunities.’
Speaking more generally about M&G’s ESG engagement, Constable-Maxwell said his firm takes a ‘targeted’ approach, focusing on companies where it believes it can have an impact.
‘We focus on the most material issues,’ he said. ‘We don’t engage on exactly the same things for every company across sectors, but we focus on the most relevant issues for each company.’
Constable-Maxwell also discussed some of the new tools investors are using to monitor their investments through an ESG lens. For example, he said investors are using geospatial mapping of physical assets to understand the potential impact of climate change and extreme weather scenarios. ‘It’s quite quickly becoming part of the mainstream toolkit for investors,’ he said.