Vital ESG themes for 2021

Katie Constance:

Thank you for joining us for our first webinar of 2021. My name is Katie Constance and it's my pleasure to be hosting today's sustainable investing discussion. Before we get started, just a couple of key housekeeping points. Today's webinar will go for 45 minutes and if you have any questions, you can submit them via the Q&A button in the Zoom portal. Thank you to everyone who has submitted questions as part of the registration process. We've had some fantastic questions and we really appreciate you sending those through. We'll incorporate questions as we go along today. We've also got some time allocated at the end for questions. Also, a reminder that CPD points will be available for financial services professionals, and they will come through in the next 10 days if you meet the minimum requirements set by the FPA. If you received these and they do not apply to you, please feel free to delete the email.

Katie Constance:

So turning now to today's discussion, and I think it's fair to say that 2020 was a key year for sustainability, both in the investment world and for society as a whole. As we all continue to consider what a post pandemic world looks like today, we want to examine in detail three key sustainable investing themes, which we at Fidelity are focusing on in 2021. Their global relevance and why they're important both from an investment and society perspective. And those three themes are climate and natural capital, digital ethics, and employee welfare. And today to share their insights on these three important themes, we are joined by two experts. First of all, Jenn-Hui Tan our global head of stewardship and sustainable investing. Jenn joins us live from Singapore, where he is based.

Katie Constance:

Jenn heads up our team of sustainable investing experts located across the globe and is responsible for providing external and internal leadership for Fidelity sustainable investing activities, including strategy and policies on engagement, voting and ESG integration. And Jenn has been with Fidelity since 2007. We're also joined by Terence Tsai, an equity analyst based in Hong Kong, and Terrence joins us live from there. Terrence currently covers the transportation and technology sectors through his role and has been with Fidelity since 2018. So Jenn, if we can start today's discussion with you, sustainable investing is obviously a very broad topic and there are a number of different themes which can be considered as part of sustainable investing. Then why is it that we have chosen to focus in particular on these three themes in 2021?

Jenn-Hui Tan:

Hi Katie, and thank you for having me here today and thank you everyone for giving us your time. So in a nutshell, I think the reason why we focus on these three themes is because we feel that they're necessary for us to emerge from this pandemic in a fairer and more sustainable place than we were before we went in. And I think to kind of understand that a little bit more, I think we need to understand what 2020 did in terms of accelerating the pace of sustainable investing development, both in the industry and in society. I think if we kind of reflect back, there were two key things I think that we felt that the pandemic really revealed about our investment process and the role of ESG in it. I think the first is to say that the value of having ESG research and ratings, we felt were proven through the crisis, ESG factors were revealed to be leading indicators of a company's resilience and a robustness.

Jenn-Hui Tan:

And actually we were able to test the resilience of our management teams and companies much more severely and much more significantly than we would have done in any normal business cycle because of the extreme events of the year. And what was revealed was that really company management teams that had a strong focus on sustainability was a sign of a forward-looking team that focused on risks, looked at their business in a long-term way. And I think that's why the sort of performance and the data of better rated ESG companies came through. But I think the second and maybe more profound aspect of the pandemic and what I think that will stay with us for a good while yet is that it's also refocused corporate attitudes on the importance of having a purpose led business. And I think it's a reminder really that companies exist not to generate a profit.

Jenn-Hui Tan:

They exist to meet the needs of society by providing a valuable product or a service. And the profit that you generate is the outcome of having fulfilled your purpose in a meaningful way it is not the central reason why you exist. And so I think what we've also kind of seen is, what we've also recognised, I guess, is that the most reliable way that companies generate long-term value for their shareholders is by focusing on short and medium-term value for their stakeholders. And businesses that we've seen pivot their operations in order to meet the short-term needs of society through the pandemic. We think these businesses have emerged in a better place, both in terms of their reputation, but also in terms of their overall resilience and robustness.

Katie Constance:

Great. Thanks Jenn. So I think now if we can have a look at each of the themes in turn, and we'll start with climate and natural capital. So if we start first of all by exploring the concept of natural capital and what its relationship is please, with climate change.

Jenn-Hui Tan:

I think we all understand the climate change emergency that we live in. And I think there is a lot of great work that is being done and needs to continue to be done to address it. But I think the bit that is perhaps less well-recognised, which we are hoping to draw some attention to through this focus, is that we're in the middle of another planetary emergency every bit as significant as climate change. The erosion of the world's ecological foundations through human activity. In some ways the pandemic has come to us really because of the continuing expansion of human activity into the natural habitats. And that's one of the reasons why this issue has now been really brought into sharp relief. We've already severely altered as a society, 75% of the terrestrial ecosystem, 66% of marine environments and we're threatening the survival of 25% of all animal and plant species that currently exist.

Jenn-Hui Tan:

The rate of extinction today is about 10 to 100 times higher than the average rate of extinction over the last 100 billion years. And it continues to accelerate fast. And I think this is what we talk about when we talk about living in the Anthropocene era, the impact that we as a human society is having not just on the climate, but also on all of the natural environment around us. And the point of stressing this as an investment issue is to say that this is not just an ecological disaster, but it is also a looming financial disaster. The world economic forum has estimated that over half of the world's GDP. So something like $44 trillion is either moderately or highly linked to the availability of natural capital. And this is very obvious for primary sectors like construction and agriculture, but equally true of secondary and tertiary industries like pharmaceuticals, tourism, chemicals, materials, and so on.

Jenn-Hui Tan:

And so I think it's becoming increasingly clear to us that what we're seeing in this world is not just one-off acute events and that the loss of natural capital and that the loss of biodiversity of that capital, that is causing a systemic risk for both investors and for society. And so I think the biodiversity agenda is being recognised today as being as relevant to the overall environmental agenda as climate change is. Beyond that, I make sort of one final observation, which is that both of these two forces have clear interrelationships and the decline well, the accelerating pace of the emergency of both is causing negative feedback loops to be generated. So for example, we've lost 17% of the Amazon in the last 50 years, that is a loss of a very valuable carbon sink. And it is also the loss of a very valuable, it's a very valuable source of biodiversity for our world. And so these two forces together is accelerating the scale of the planetary crisis that we face.

Katie Constance:

Great. Thanks Jenn. So you mentioned obviously the loss of natural capital huge impact from a society perspective, but also an issue that investors should be taking into account. So how should investors be taking account of these risks?

Jenn-Hui Tan:

So I think there's three main things I would say investors need to do. So I think the first thing I would say is that investors, I think have a key role to play in protecting biodiversity and achieving biodiversity net gain outcomes. And I think as a community, we've made good progress in understanding and pricing climate change risk. And we now need to do the same thing for natural capital. So when I say pricing natural capital, what we need to learn is how we can price it as an ongoing sustainable good. So not just as an input into a manufacturing process, which is currently how we think about natural capital when we account for it. We need to go beyond that and really think about how we can quantify and price the value of natural capital in a company's operations.

Jenn-Hui Tan:

I think we need to understand how exposed companies we are invested in are to nature-based risks. So borrow from the TCFD framework, which has been very successful, but also use that to align to broader risk management practises, things that companies should be doing to protect their future operations. And then I think the final thing that investors need to do is engage with companies on these issues. So for example, with in Fidelity, we had ongoing thematic engagements in deforestation and in the palm oil sector, both looking at how a business operating and those things can better protect their natural capital. So I think three things at a macro level, understand natural capital risks, understand biodiversity risk and price it better. Understand that at an individual corporate level and use that in understanding to engage with the companies.

Katie Constance:

Great. Thank you. A bit of a broader question now on climate, sort of in general, we've had quite a few questions through on Biden's recent win and the return of the US to the Paris Agreement, obviously very topical at the moment. Interested in your thoughts on what you think that means for the global climate agenda overall.

Jenn-Hui Tan:

Positive, I think we can say. I think so far, and it is early days, a lot of the initial work has been around signalling and that isn't to diminish it. I think signalling is a very important tool when it comes to politics particularly on climate change. So if you think about what Biden has done, of course, he's restored the US's role in the Paris agreement, he's created a central office in the White House that is in charge of coordinating all domestic policies when it comes to the climate change agenda. He has a new Special Presidential Envoy John Kerry, of course, he's directed the treasury to assess financial climate change risk. And so on and so forth.

Jenn-Hui Tan:

I think there's sort of good things to say there. I think beyond that, when it comes to substantive policy, he's looking at fossil fuel subsidy reform. So how can we reduce some of the subsidies that are already baked into the system that incentivize people to produce and consume fossil fuel energy? And he's considering what kind of additional incentives needs to be put in place through towards green investment? Not least through the stimulus package that's currently being debated in the Congress and Senate. He's also directing federal agencies, for example, to purchase carbon emission-free electricity and electric vehicles. He's reviewing oil and gas leasing on federal land. He is unwinding some of the Trump era executive orders around fuel efficiency of automobiles or energy efficiency of appliances, so on and so forth and things like that.

Jenn-Hui Tan:

So I think this is all incredibly positive. The two main things that I would say we need to look out for. So firstly, the restoration of the US as of the Paris Agreement will come with a new nationally determined contribution by the US towards the Paris Agreement goals, so the NDCs. We need to see how ambitious the US sets those targets, because that will in turn significantly influence the kind of policies that the US will put in place. And the second big thing, which is a bit of a wishlist for everyone working in this field is what can he do around carbon pricing and carbon taxation? And I think everyone understands that if we are going to price the negative externalities of carbon emissions in the correct way, we need some form of a carbon tax that can reflect those externalities back into the businesses that are producing and consuming those emissions.

Jenn-Hui Tan:

I think that's a sort of relatively uncontroversial statement, but the way in which you would need to get there is either through an increase in tax or through some sort of trading scheme, both of which are politically quite, quite difficult to achieve in the US at this point in time. So I think it's a bit of a wait and see for that on that school.

Katie Constance:

Okay, great. Thanks. We might move on to the next theme now. So digital inclusion, an interesting theme that you don't always come across as often as say climate, which we touched on first of all, we hear reference and talk off the digital divide. So can you explain what that is?

Jenn-Hui Tan:

Yeah, so actually, and this is another one of the ways in which all of our themes have really been influenced and shaped by the extraordinary year we've just gone through and what we think we need to do in order to recover safely. Because I think it's not lost on anyone attending this call, that our lives now play out on these digital platforms and they have become essential in a pandemic. And I think a recent study from McKinsey showed that of the first-time users of technology, 75% of all of them will continue to rely on them very heavily whenever things return to sort of 'normal.' And so really that's focused our attention on well, who has access to these platforms and what happens on these platforms once we're on them, really?

Jenn-Hui Tan:

And so the digital divide, I think, refers primarily to that first point around access. So it refers to that quite broad difference between the developed world and the developing world around who does, and doesn't have access to the internet. Around half of the global population doesn't have any access to the internet and I think clearly those are much lower levels in the developing world. But even within the developed world, you see quite significant differences in access, depending on where you live. If you live in a rural area or a remote area, your ability to make meaningful use of the internet can be heavily impacted.

Jenn-Hui Tan:

And then you think about what are the kinds of life outcomes that come about because of your lack of ability to access this technology? So most job opportunities for example, are now available, it can be applied for one the internet. I think a piece of research from the UK government showed that 82% of all of the available job vacancies required some form of digital skills. And I think that would be equally true in Australia. I saw actually even booking a vaccine appointment requires you to have access to the internet to book it now. So in a very real sense, your ability to access the internet is a very likely leading indicator of what kind of educational or health or societal or employment outcomes that you will be able to achieve in the future. And so I think one of the core priorities is what can we do? What can governments and companies do in order to broaden that access to technology?

Katie Constance:

And so following on from what you're saying there, what can be done to, I guess, bridge the gap or close this digital divide?

Jenn-Hui Tan:

So I think the first thing is and actually this is true in general I think of these big societal issues that ESG is intended to tackle, but generally most things need to be achieved through a public private partnership. Climate change is an example, biodiversity is an example, digital inclusion is an example of that as well, right? So digital accessibility needs to be made a key social priority and needs to be acted upon by the leading infrastructure providers, telco providers, and also by governments. I think beyond that, the other issue that we're engaging on is what happens when we get online and what does the world look like for all of us living there? And I think this is where the second half of this issue becomes very alive to us, this issue of digital ethics.

Jenn-Hui Tan:

And so really in a nutshell, what is digital ethics? We think of it as being how digital companies self-regulate themselves across a whole range of their global responsibilities. So for example, online welfare, gambling, social media, gaming companies, or the propagation of misinformation and how content is policed or data privacy, and the use of algorithms within engagement tools and online fraud and tech, and how do you prevent people from the exposed to criminality. And so another responsibility that we need to have as investors is to actually be engaged with our investee companies on these issues, not just because it makes a better environment for us to live in digitally, but because these are significant business risks for these companies as well.

Jenn-Hui Tan:

We all know these tech giants, they live amongst us. They're incredibly well favoured in the investment community, but they are not free from risk. And their biggest risk at this point in time in our view is the risk of government regulation from all around the world, from many different aspects. Some of that in Australia as we read about, but also from a loss of trust from their user base. And so what we're trying to do is really encourage technology companies to see the value of self-regulation recognising their cross-border responsibilities.

Katie Constance:

Great. Thank you. I think we'll turn now to employee welfare and before we look at that theme in little more detail I think it's useful if we set the scene and it's fair to say that social issues such as employee welfare have really come under scrutiny in the wake of the COVID-19 pandemic. So Jenn, why do you think that is?

Jenn-Hui Tan:

So I think the most obvious answer to that is that the pandemic has had a very severe impact on the livelihood of people all around the world. And it has a very disproportionate impact on some of the more vulnerable yet essential members of our society. Whether they are women, children, or I think minorities. We will talk about a one key type of worker a little bit later, along with Terrence and what we're doing. But I think in 2021, we expect there to be much greater emphasis on companies they need to be accountable for the welfare of the customers, for their stakeholders and for the communities in which they're operating.

Katie Constance:

And before we turn to Terrence and we talk about an example of one of those essential workers. We just wanted to touch on modern slavery. We've had quite a few questions through on modern slavery. It's a very big area of focus particularly in Australia, given the recent introduction of the Modern Slavery Act. In your view, Jenn, how should investors be looking at modern slavery risks through their investment process?

Jenn-Hui Tan:

So, let's kind of frame the problem first, I think because again, I don't know how much this is generally widely known. So the International Labour Organisation estimates that today, there's around 40 million people existing in modern slavery. Numbers are very hard to come by because this is by definition an underground activity, but that's based on the best available estimates using satellite data and on the ground data. 25 of those 40 million people are in Asia-Pacific and around 70% of them are women. And one in four are children. Companies in Asia-Pacific, including those in Australia, are quite exposed to this risk through the supply chains of the businesses that operate within the Asia-Pacific. And I think this is reflected in the attention that the regulators, the market is now increasingly placing on this issue. So a great example of that, as you say, Katie is the recent Modern Slavery Act, which will require over 3000 companies to report annually on this issue.

Jenn-Hui Tan:

So what can we as investors kind of practically do about this? So one of the things that we did last year alongside some of our key Australian asset manager partners and asset owners was to found a collaborative initiative called the Investors Against Slavery and Trafficking. So this is an investor alliance coming together to try to really address some of the modern slavery and human trafficking risks. And it's based on the, find it, fix it and prevent it principles. So figure out where in your supply chain you are most vulnerable to modern slavery risks, figure out how to remediate that risk and then figure out how to make sure that it doesn't really happen again. So through IAST, you can sign up to one of two work streams.

Jenn-Hui Tan:

So the first is our reporting work stream. So we can all collectively help to set clear expectations to Australian companies around what we regard as being best practise for modern slavery disclosure. So a good example of that would be extending your disclosure beyond just your tier one suppliers or whether or not you have a clear remediation policy in place when you do find modern slavery risk. And here actually that the most common remediation approach is to simply cancel your contract with your suppliers, but in actually in many cases that can exacerbate the modern slavery risk that you think you're trying to address. So actually it's sometimes not the best way to do that.

Jenn-Hui Tan:

The second I think is around collaboration with Asia-Pacific companies on this issue. Modern slavery is a very complex systemic issue and very much like the issue that Terrence and I will talk about. There are no easy solutions. It's very deep and it has its roots in many different issues. And so it's one of those issues that I think lends itself very well to thoughtful collaborative engagement which we expect to be a multi-year journey. And if anyone's interested in that, I think we'd welcome as much participation as we can.

Katie Constance:

Great. And Terrence, we're not going to talk to you about seafarers, the issue that Jenn referred to, I think just to provide a little bit of background for those on the webinar, who might not be familiar with the issue. But essentially at the start of the COVID pandemic in early 2020, there are a number obviously of border and port closures, which meant that seafarers, those essential workers at sea were ended up being stranded on ships and working for much longer than 11 months, which is a regulatory limit. Now that's obviously an issue because it poses health and safety risks to seafarers. And it's also a threat to the movement of goods in the global economy. Terrence, you've done a lot of work on this issue. So can you start by telling us how you discovered the crisis and what made you want to get involved?

Terence Tsai:

Sure. Thanks for having me. So I think it really started with the stories and how horrific those stories are. And it kind of it leaves an impression on anyone who hears it. For example, there was on the ship, the captain died of a heart attack and his crew had to store his corpse in a freezer for about two weeks before they found a port that was willing to repatriate the body. When we were speaking with one of the companies we invested in, a dry bulk shipping company, the CEO told us one of his captains had lost his son, but even though they were trying their best to get him back to his home, it took about two and a half months of jumping through red tapes before he could actually repatriate the captain.

Terence Tsai:

So these stories started to build within the shipping and maritime community, but I was quite surprised it wasn't really talked about by the investment community, either the investors or sell-side analysts. And I guess it just goes back to shipping as an asset class, as an industry. It hasn't really been investible for a period of time. And to some extent the ship owners have been overzealous in ordering ships in the past, they've oversupplied the market and returns have not been good. And I mean, most investors here can just think back to when was the last time they looked at a shipping stock as an investment idea? But where Fidelity and Jenn and I decided to engage a larger team to get involved was first and foremost, this is a clear humanitarian crisis. You have 400,000 seafarers stranded at sea literally forced to work against their will on ships that have become floating prisons.

Terence Tsai:

This is the modern slavery or an iteration of the modern slavery that Jenn was talking about earlier. On the commercial side, about 90% of global trade is enabled by shipping. So from your consumer goods, from your agricultural products to energy sources, the shipping is really the lifeblood of the global economy. So I think where we got a lot more concerned was we felt that if the crew change crisis worsens, we're going to see more workplace accidents. We're going to see ecological disasters, oil spills and that will lead to a breakdown of the global supply chains. And so we felt that we could no longer hide behind the statement that, "I don't invest in shipping and that's why I shouldn't get involved." If you do invest in any of the companies that are involved in 90% of global trade, then it's imperative to take an issue with what's happening with the seafarers. And that was the reason for us to get really vocal about this issue.

Katie Constance:

So what's happening now to try and bring the seafarers home, what we've been doing at Fidelity and sort of more broadly?

Terence Tsai:

I think when we first started the process and think about engagement, there was a real need to observe intellectual humility in this sense, because as an asset manager, it's impossible for us to know the intricacies better than the immediate players, the shipping companies, the shipping management companies, airlines, charters. And so we relied very heavily on thought leaders in the field, maritime organisations like the IMO, which is part of the UN, the ITF, the ICS international chamber of shipping. And they put a lot of thought into devicing protocols to ensure they save exchange of crews at the ports. And so I think we realised that the protocols were there, but the message and the awareness of this issue was not. And so that was the angle we targeted, we tried to use mainstream media to get the word out.

Terence Tsai:

It was not well covered by the mainstream media. And we tried to rally our peers and asset management to show support and commitment in this regard. We recently sent a letter to the UN secretary general with 84 other asset and management investors. We signed a Neptune Declaration with about 300 different companies from across the industries. And in the short-term, we are hoping that we can engage and look internally and look at the companies we have a substantial stake in whether you're a charter, whether you're a shipping company, whether you're an airline and see if you can mitigate this. And this is going to be a bandaid to this situation, but we can help mitigate the situation. If you charter a ship, maybe be a bit more flexible, let ships deviate to certain routes or ports that are more crew change friendly.

Terence Tsai:

Maybe think about where it makes economic sense to have a flight from major ports back to major seafarer countries and origins. Any of these would help mitigate the situation in the short-term. In the longer-term, there has to be more cross industry and government private company collaboration before this could work.

Katie Constance:

Great. Thank you, Terence. And obviously it's a crisis that's not going to end any time soon. How are we going to ensure that we keep pushing this issue forward? I mean, you've touched on some of the things that we're doing now what needs to be done with a medium to long-term, but how can we keep pushing this issue and ensuring that ultimately seafarers don't have to go through what they've gone through to date?

Terence Tsai:

I think we should continue to... Oh sorry, Jenn, did you want-

Jenn-Hui Tan:

No, no, no. Go Terrence. But I was going to ask you to sort of, to take a slight issue with something Katie said, not in a bad way, but if I kind of step back like this is a crisis, which is something that we have created. When I say we, I mean, the system that we've created around how it is that we want to create national barriers and protect local communities. You don't hear this problem in take, for example, the aviation sector. Because it is aviation employees have been designated and rightly so key or essential workers and protocols have been established to enable safe exchanges of crews and so you don't have the risk of planes falling out skies or something like that, right? So whilst it feels like a really difficult thorny problem to fix, it is actually not beyond our gift to fix it, if there is a will to fix it.

Jenn-Hui Tan:

And I think what we're trying to do is to create that will here. I think seafarers are not a particularly privileged, protected class. They tend to be they come from relatively poor backgrounds from emerging nations. Most of them from India, China, Philippines, Russia. They don't necessarily enjoy a lot of, sort of protected status and even in their own countries. And so one of the things we need to make sure is that they are not overlooked. And there's the story of this pandemic is really about who's been impacted and how can we ensure that these people are not overlooked anymore any further than they need to be so that their livelihoods can be restored? I think one really important thing that we want to focus on is around ensuring that they're not just designated as key or essential workers, but they're then given priority access to vaccines.

Jenn-Hui Tan:

And this is actually a broader issue in general, I think we know there's a supply shortage of vaccines. But at some point there won't be, and we need a mechanism to ensure a fair and equitable access to vaccines across the world. A little bit like climate change, if you create herd immunity in one society, but not in another society, you'll still get mutations that will threaten the global health of everyone. And so we do need to kind of think about a systemic way that we addressed vaccine distribution. But one of the things that we think is a really important place to start for the seafarer community is to make sure that they have access to these priority vaccines so they can carry out doing the essential work that they do. 90% of world trade moves by ships. So if you think that is fundamentally an important thing to continue, then you should be supportive of efforts to protect the integrity of that.

Katie Constance:

And Terence, did you have any sort of closing comments on this issue?

Terence Tsai:

Just, I mean, Jenn was spot on, so I just echo that we need for this to be resolved in the longer term, we definitely need the governments to recognise seafarers as key workers and recognise their essential place and service that the service that they're providing in ensuring global trade works out. I mean, in the shipping industry right now container shipping, the rates have gone sky high, just because there's a lack of boxes. Imagine if the seafarers supply has sort of broken down, that would be catastrophic for global trade.

Katie Constance:

Great. Thank you, Terence. We've just got a couple of minutes left and we've had some good more general sustainable investing questions through one for you, Jenn. So similar to what we touched on at the beginning of the webinar, 2020 was obviously a major year for ESG and sustainable investing. However, it's said that this has led to a rise in greenwashing. Jenn, what are your thoughts on this and how can greenwashing be avoided?

Jenn-Hui Tan:

I think greenwashing is a phenomenon that predated the pandemic and I have no doubt will sit with us for quite a few years yet. If I think about greenwashing and I think about it in a couple of ways. So when we go out to meet companies and we make assessments of their sustainability practises, how confident are we as an investor that they are not greenwashing their credentials? So if a company, for example, issues a green bond to fund a specific project, how can we be comfortable that they weren't just going to do that project anyway, that that just actually, isn't just part of their CapEx? And they're just taking advantage of increased funding and lower costs in the green bond market to be able to label something as green, but then not actually have it meaningfully create additionality to the broader environmental movement. Right?

Jenn-Hui Tan:

So when we think about doing our investment process, this is one of the reasons why we heavily centre on meeting management teams. So we have alongside Terrence around 180 other analysts sitting across the world doing exactly that meeting companies every day, 20,000 company meetings a year to make sure that we're trying to get as best we can, the full picture, which isn't to say that we will always get the full picture. We will not, but I think that's the process of investing the endeavouring to try to fit in and figure out what is something that they're just saying versus something that they're actually doing? And I think that's the key difference really, between assessing the practise and assessing the disclosure of a company.

Jenn-Hui Tan:

But then I think the challenge is then so having a process to identify greenwashing at the corporate level and how are we making sure that we're buying companies that genuinely do what they say? How do we then translate that to our funds? And how do we give confidence to our investors, our fund holders, that our funds do what they say on their team? And so there's a couple of different things happening, I think that will hopefully clarify this. So regulation is coming in at a very quick pace. And so definitions around what was so previously, every fund manager essentially defined for themselves what sustainability was, regulation will come in to create a much more prescriptive definition around that. And that in my view is a good thing. You'll create increased transparency, will allow for end clients to be able to compare different processes more as well. But beyond that, I think the challenge for us as asset managers is how do we quantify what we're doing in a way that investors can measure and they can see, and they can trust in the data that we're producing around sustainability?

Jenn-Hui Tan:

So I go back to this idea of sort of engagement versus exclusion, right? And I think everyone is intellectually on board with the idea that exclusions don't actually achieve a great deal in terms of making the economy more sustainable. It will make your portfolio more sustainable which is not a small thing, but in terms of achieving change into the real economy in reducing emissions or so and so forth. What you're basically doing is passing on the responsibility to another set of investors potentially in the private markets, for example, who may or may not have the same approach to their investing as you do. But then, but if your philosophy is okay, so you're going to own this stuff, but you're going to work with the companies to improve them.

Jenn-Hui Tan:

We, as an industry, need to get much clearer and much more transparent around what it is we're actually doing and how it is that our efforts around engagement are making a difference. And also equally importantly, what happens when our engagement doesn't work? So what are the consequences for having engaged with a company to achieve change on modern slavery or digital inclusion or whatever? And there having been a stick, if your carrot isn't good enough. And that answer has to be in some way, shape or form divestment or a reduction of your overall holding. So I think the tools are sort of coming one around, better measurement on what we're doing, but then also I think increased transparency around that as well.

Katie Constance:

Great. Thank you, Jenn. And you actually just answered another question that came through on engagement versus exclusion. So we've covered a couple of questions in the one answer. So that's great. Well, Jenn and Terrence, thank you. That brings very close to the 45-minute mark. And to everyone on behalf of the team here at Fidelity, I'd like to thank you for joining us today, and we hope that you have enjoyed today's discussion. If you have any follow-up questions or you'd like any further information on sustainable investing, please do get in touch with a member of the Fidelity team or head to our website, www.fidelity.com.au/sustainableinvesting. You can also subscribe there to our sustainable investing quarterly communication, and that's via our website. So thank you everyone once again, and good afternoon