How Prudential Plc, KWAP navigate global sustainability needs and standards
Prudential Plc’s climate journey began when it became one of the early implementers of the Task Force on Climate-Related Financial Disclosures recommendations in 2018, according to the firm’s head of responsible investments, Liza Jansen.
“We pledged to become a net zero asset owner by 2050, meaning our entire investment portfolio needs to be net zero by 2050," Jansen said at AsianInvestor’s 3rd Malaysia Global Investment Forum in Kuala Lumpur on October 8.
While the life insurer’s efforts began with setting decarbonisation targets and climate stress testing, it has since refocused its mission to facilitating the green transition across the 24 markets in Asia and Africa in which it operates.
Part of its process involves leveraging its influence for more equitable outcomes.
Prudential
"Over time, we've focused more on using our influence to drive greener and sustainable investing, not just because it's the right thing to do, but also for fiduciary duty. All climate scenarios agree that the best outcome for everyone is an orderly and inclusive transition," said Jansen.
Recognising the challenges in emerging markets which still heavily rely on fossil fuels, Prudential has developed a unique approach to transition investing.
"We need to actively finance carbon-intensive sectors to help them decarbonise and allow flexibility for emerging markets,” said Jansen.
“We've developed our own financing and transition strategy, actively looking for not just green investments but also investments financing the transition in carbon-intensive companies and sectors."
GLOBAL STANDARDS, LOCAL NEEDS
Malaysian pension fund Kumpulan Wang Persaraan (KWAP) has been integrating environmental, social and governance (ESG) considerations into its portfolio since 2017.
Speaking at the AsianInvestor event, Idora Baharudin, vice president of enterprise sustainability at KWAP, outlined the fund’s most recent commitments.
KWAP
"We recently launched our first sustainability report in August with five pledges: advocate social agenda, empower partnerships for collective actions, achieve a net zero portfolio by 2050, increase transition assets to RM20 billion by 2030, and enhance sustainability governance," she said.
KWAP employs a structured process to align global standards with local needs, according to Baharudin.
"We use a funnel process where we look at global standards like the Paris Agreement, then national standards like the National Climate Policy 2.0, then industry-level policies like the National Energy Transition Roadmap and the Circular Economy Policy Framework,” she elaborated.
Through this process, KWAP seeks to make investment decisions that are both globally responsible and locally relevant, balancing international sustainability goals with Malaysia's specific ESG needs.
“The investment decision ultimately comes down to KWAP's organization level, where we have mandates on thematic investments including energy transition, education, advanced manufacturing, digital technology, and food security," said Baharudin.
As a result, the pension has supported Malaysia's own sustainable development and transition to a greener economy while also contributing to global sustainability efforts.
ESG RED FLAGS
Both Prudential and KWAP recognise the importance of addressing greenwashing concerns in sustainable investing.
Prudential’s Jansen emphasised the need for enhanced transparency and reporting standards in the market.
"The key to managing greenwashing risk is transparency and communicating what you're doing in an understandable, accessible way. We need to be very clear about what we're doing and what clients can expect to avoid accusations of greenwashing," said Jansen.
KWAP’s Baharudin added that engagement with its portfolio companies is the key.
"We do a lot of engagement with our investee companies to ensure that what they're reporting is accurate. We also participate in collective efforts through the Institutional Investors Council to engage with companies that have ESG concerns," said Baharudin.
“We monitor our investments, conduct due diligence pre- and post-investment, and have a stewardship role where we engage with companies. We escalate any ESG red flags or concerns from our investment side to the investing company,” she said.
Both institutions also stressed the importance of external validation.
Prudential seeks external endorsements on their "Financing the Transition" framework, including technical reviews from the Climate Bonds Initiative. KWAP employs external assurance for their emissions disclosures in their sustainability report.
Editor's note: This article was updated.