Jane: [00:00:47] Hello and welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about sustainability and finance. I'm Jane Goodland and this week we're talking to Sindhu Krishna, who's the head of sustainable investment at Phoenix Group, which is the UK's largest long term savings and retirement business. Phoenix published its net zero plan last year, and this month launched a new climate aware equity benchmark as part of its portfolio decarbonisation strategy. But before we hear from Sindhu, a quick reminder to follow us so you don't miss any future episodes. And also, don't forget to rate us on Spotify, Apple Podcasts or any other platform you use. Enjoy the show!
Jane: [00:00:41] Well hello Sindhu how are you. Thank you so much for coming on the show. I can't wait to talk to you about Phoenix's sustainable investment activity.
Sindhu: [00:00:49] Thank you. Jane. Good morning. Lovely to be here on this, on this, on this program. Delighted to chat and very much looking forward to the to your questions and the session.
Jane: [00:00:57] Great. Thank you. So, let's get started. And before we sort of dig into some of the details, it would probably be helpful just to give us a few headlines about who Phoenix is, because I suspect not everyone is familiar with the Phoenix group. So, tell us a bit more.
Sindhu: [00:01:09] Absolutely. Jane. So, Phoenix is UK's largest savings and retirement business. We're here to help people secure a life of possibilities. We have a number of brands, Standard Life, Phoenix life, ReAssure. So, we have a family of brands, and we operate through them. We are about 280 billion assets under administration, and we serve about 12 million customers. So that's the kind of scale from a from a Phoenix perspective. I'd like to touch on briefly on our purpose as well. So, we are as, as a community, as people living longer. But unfortunately, many of us don't have that retirement income, are not tracked for that retirement income that we expect. So, we need to think differently. And I'm proud to be part of that business whose playing a major role in improving the financial futures and readiness and closing the pension saving gap.
Jane: [00:01:54] It's so important, particularly because we've shifted from a defined benefit world where everyone was secured a lovely income in retirement, and we've gone to this defined contribution era where, you know, it's really important that people start saving much earlier. And so, Phoenix is helping out with that. But of course, you've got well, you just said, many, many billions of assets under management. And, and that's where the sustainable investment comes in. And you're the head of sustainable investment for Phoenix Group. So, tell us a bit more about your role. You've been with the group for about 12 years or so. What does that entail? What's under the bonnet of your job, as it were?
Sindhu: [00:02:24] So I started way back in 2011. I started my career in Phoenix, but I started as an investment professional. I'm a trained, I’m a CFA chartered holder, so started in the traditional investment world with investment analysis, strategic asset allocation across the different business lines of Phoenix Group, covering unit linked with profits, annuities and so on. But I have been leading on the sustainability journey for the last seven years, and it's been growing, or it has been growing in terms of the formality, the focus. And as we all know, this area has seen a huge increase in terms of evolution over the last years. Sophistication has been fantastic. So, the journey started from there's a risk here. There's something that we are not pricing as investors. There's something which is becoming even more ever so important for us from an investment bottom up perspective, looking after our customers, the fiduciary side of things. And it started growing from that side. That's how it all began. But obviously there's been a huge focus from a regulatory perspective. Our customer wants this as a huge focus from a customer perspective. Investors are increasingly very important very focussed. It's a very important topic for them. And it's embedded increasingly across the value chain. So, you're seeing it really in the ecosystem now given where, how things were when I, when I started. So, if I just can, go through a bit more in terms of my team and how we structured, I report into our Chief Investment Officer, Mike Egan, and I have a team which looks after the assets that I mentioned in terms of all the assets under administration. So at a high level, what do we do? So, we've kind of have structured it into different teams. But climate risk is one of the most advanced or more quantifiable. There's lots of sophistication there. So, we look a lot of it from a risk perspective, quantifying what do we measure, why do we measure, how do we measure this? How do we include that in the investment strategy? Those are the kind of things that that we look at. That's one aspect. Again, we're just not restricted to climate. All of the ENS factors which are being quantified, which have the financial risk we cover that. We have a stewardship team. As an asset owner, it's a very important aspect. We believe in engaging for change. So, we have a steward stewardship function. And we're not just quantifying the risks or saying this is to be done or just telling what the headlines are, but we are coming in, in terms of helping our colleagues in asset management on the how, whether it's on the public assets, the policyholder assets or the private markets, the shareholder assets across all of the assets. We're helping the colleagues to say, how do we actually embed these features? And we are on a journey. We work very closely with asset management partners. And that's a key focus of the team. And to sum it all up, we have disclosures. We've done a lot of good work. And we now have to disclose that to the regulator, to the customers and the outside world. So, reporting and disclosure is also a key part of my team.
Jane: [00:05:04] Thanks. So, you've touched a little bit on a kind of the why, but I'd like to kind of go back to that in a way. Asset owners if you like, if you think about the kind of the food chain of the investment world, asset owners are really at the top of that food chain. And so, what you guys do really matters because it filters through to asset managers, etc. So, from an asset owners perspective, why is this sustainability so important to you as an organisation and your customers? What does it come down to?
Sindhu: [00:05:28] I think. I think there's a number of dimensions change. If I simplify this as investment professionals, we've always said the past source of return or past return is not an indicator indication of future return. And similarly, our sources of return. Are they the same going forward? What are the different sources of risk and return for on a going forward basis as this society needs to evolve? And even if we look back, we've had the industrial revolution, we have got technology, we have got digitisation, we have AI. So, the world around us is changing, adapting. And a key piece of this, and I'll use the climate as an example. Nature is another dimension. Social factors are important. But as these changes they are bringing in a new dimension of risk, new investment, opportunity set. And these are hard to ignore and something which are critical for investment management, especially, again, given the fiduciary responsibilities that we have. So, we are increasingly looking at portfolio construction, traditional investment management with these additional lenses of if we transition what is energy transition mean to us across different jurisdictions. We are operate a global portfolio. So, what is it actually mean? We talk about given the climate we're in, we know them from a more macroeconomic perspective, supply chain shocks, food security water. What do all of these means through the risk and returns that we would like for our customers to the portfolio resilience. We are in untrodden territories. We haven't done that in the past. But something that is increasingly important. That's why from an asset owner perspective, we are keen to explore all of these, bring it into investment management, and we work very closely with the asset management community, our asset management partners. And as you said, with a number of other players in this ecosystem.
Jane: [00:07:06] Is it principally about mitigating the risk that might be coming through the portfolios from sustainability related matters such as climate transition or energy transition, or are you looking at the kind of upside opportunities as well?
Sindhu: [00:07:19] It is both. So, there is three levers. I'll just simplify this. So, one is risk management the resilience portfolio resilience. Then there's the opportunity sides the two sides of the coin the risk and the opportunity sides. We absolutely want it to be there. So, if there's a risk there's always the other side to it. There's the opportunities. What is the new source of alpha. The new source of returns that we can bring in for our customers. So, we absolutely want it. And then there is the stewardship side of the investment strategy, which is key for us, a key lever for us. We want to engage with for change. We want to work with the investee companies as they transition again using climate as an example. So that is also a key feature, a key focus area for us as a business. So, the risk there is the risk the opportunity side and there's the stewardship side.
Jane: [00:08:05] Okay great. Thank you all makes sense so far. Now last year Phoenix published its net zero transition plan. And that's got some targets in it. Can you tell us a bit more about that?
Sindhu: [00:08:16] Absolutely, Jane. So, I think before I go into the transition plan, I think I'll just also outline how we actually go to that, because that was the first one that we published last year. So, we developed according to some principles, we set aside some principles before we crafted the net zero transition plan. The key aspects or the key part of that was putting our customers at the heart of everything we do. So that is the key part of the key focus area, key priority for the business to deliver good outcomes for our customers. So that was the first principle. The second one was we want to align with the best practice, with the best frameworks. So, we have developed our plans in accordance with the transition Plan Task Force and also the Gfanz, the Glasgow Financial Alliance for Net zero. So, we've used industry guidance which is available to arrive at our transition plan. Then we want to have a focus on real world decarbonisation, real economy decarbonisation. So ultimately what we do, we wanted to contribute to the real world change. On paper, a portfolio can decarbonise, but we want to try our efforts is focus on as much as possible of the real world. So that has been also a key area of focus to an ambition for us is to push towards that. So, those are the key areas, three key areas of the principles which kind of led to the transition plan. So, within the investment portfolios we have the net zero target net zero by 2050. But also, we have interim targets. So net zero is not one big giant leap. We have to get there. We have to be on track. So, we need interim steps. So, for our listed assets, which is equity and credit, we have a 2025 target reducing emission intensity by 25% relative to our base year of 2019. Then we have a 2030 target, halving emissions by 2030. And then we have a 2050. So, we have two interim targets in addition to the net zero target.
Jane: [00:09:59] So we've covered the targets. Before we kind of look at that in a bit more detail about how you're going to deliver those. Because that's the hard part. Can you just explain the difference between decarbonising your portfolio on paper versus real world decarbonisation? Because I'm thinking it's probably in some ways, potentially easy to just to get kind of high emitting companies out of your portfolio, but they still exist in the world, right? Is that what we're talking about? Is that a difference here?
Sindhu: [00:10:24] Precisely. Jane. So, I think the intention is, is not just to exclude or just tilt towards a few companies than the other or looking at historical emissions. So, this different ways that you could have in terms of what exposure you want to be geographically, etc., but precisely to your point that we don't want to get there through just excluding certain regions, certain stocks, but we want to align ourselves as much as we can to actually making a difference to stewardship and the real world.
Jane: [00:10:49] Okay. Good. Right. So, let's move on to the how then. So, and let's just be clear, 99% of your emissions in total are indeed in your investment portfolio. So how on earth do you go about decarbonising your portfolios in the way that you've talked about to meet your targets?
Sindhu: [00:11:05] That's a great question. I think there's lots of, options available for investors in terms of how they could implement their approach to climate risk. Very happy to share our approach here. So, for us, I think there's, again, going back to what are the principles that that we want to make sure that we are following when we go on this journey. We've spent a lot of time thinking about that. And we've also spent, even before we go into the decarbonisation, how do we underpin that? Those principles are what underpins the how. It is key for us that we own the pace of decarbonisation. So, when do you start your journey, at what pace in which the portfolio is decarbonisation? Do you know why the units of measure how are you actually measuring? Those are key questions that that an investor has to consider first. Before embarking on that, on the how journey. And then also, the decarbonisation. Do you want metrics or data which is looking backwards in terms of how companies have fared so far on transition, or do you want to go look forward as well? So, for us, the forward looking dimension is a key focus area. We want to look ahead. So, we want to look at companies who are setting targets, who are transitioning who have got management committed to that or showing progress. So, the forward looking trajectory is very important to us. We talked about exclusions in terms of for us at Phoenix, it's the last resort. We usually use it as a blunt tool. So, engagement we absolutely. As I said, look at the last it on and it's not the first port of call at all for us. And how do we actually bring in all of these dimensions together in terms of the portfolio construction? So that's the kind of approach that we have taken in terms of putting our principles forward looking the data, the decarbonisation pathway, and looking to integrate that within the investment process and management. And again, there are lots of various data points available from within the EU. We have the EU climate transition benchmarks, the Paris aligned benchmarks. There's guidance available in the UK as well. So, we've looked for best practices across vendors, have had discussions with our asset management partners. And we have come up and we have our own approach in terms of the custom benchmarks that we have recently launched, to kind of build in everything that we have in terms of our principles, reflecting in that to answer the question about how we actually start decarbonising. And again, the key part for this is for me is it's not a one and done. It is a process. The decarbonisation pathway should be able to evolve. Again, we don't know how things are going to evolve over the coming years. So, for us that flexibility, we're not doing this on our own. We're part of the ecosystem. So, we have the flexibility to adapt on a going forward basis.
Jane: [00:13:26] And you mentioned custom benchmarks. Now that is something that FTSE Russell has helped Phoenix on recently. So, it's the climate aware benchmark. Tell us a bit more about that because that seems like a really sort of fundamental part of your approach because it's going to become the default benchmark, right.
Sindhu: [00:13:41] Yeah. So, I think we did talk about that with in the transition plan you mentioned as well. Jane. So again, this is the part of the how for us in terms of incorporating the principles are just outlined. Within the equity sleeve, again, the transition is different for different asset classes. We have to tailor the requirements to the customer base in terms of what we're trying to manage. The in this case, we're looking at climate change as a, as a risk. And we're looking to manage that risk for our customers. So, as we look at different asset classes, we'll have to look at what this actually mean. Clearly, we're talking about the equity indices. And this is the phased approach that we are introducing to manage climate risk, align to our principles. And then ensure that they are dynamic and they evolving as best practice as we know more as our understanding and knowledge grows and we've built a process, controls and governance frameworks around that so that we can make sure you know that as we go through on a journey, we keep our customers at the centre of everything we do.
Jane: [00:14:34] Okay. Great. So earlier you mentioned stewardship and engagement. I'm quite curious to know how that works in practice. When you have external investment management managers, etc. And also, whether or not the transition pathway initiative is something that you've come across or gotten involved with. That's two questions in one. I'm sorry, Sindu, but I'm sure you can take one. So, let's talk about how it manifests in terms of your relationships with investors, investment managers, but then also maybe the TPI question as well.
Sindhu: [00:15:02] So from a stewardship perspective, it's a very important lever. As I initially mentioned, we adopt an engagement first approach. So, we want to use the position of influence to bring the change. We want to see. We use a different approaches for that. As you mentioned, we work very closely with asset management partners. We delegate that to asset managers. But also, we have our own in-house stewardship team who are more proactive and looking at different aspects of that. So given our size and scale and in terms of our in-house team, we do take a materiality approach. We have themes whether it's climate, whether it's human rights controversies, nature. So, we kind of prioritise the key themes. And we direct collaborative engagement as well. But the vast majority is done through our asset management partners. But the thing the key for us is to make sure that there is a regulated it's not just a dialogue with the company, but there are regular milestones, there are escalation, and asset managers are combining the voting and the engagement strategies to make sure stewardship is effective. And we can see that playing out as we have those dialogues with our asset management partners. Coming to Transition Pathway Initiative. Again, that is the key feature. A lot of the asset managers do use that. We use it as well to inform how companies are doing, whether it's the carbon performance or the management quality, to get a better understanding of the companies. And also, it is one of the inputs into Climate Action 100 plus. So again, there is collaborative engagement there. So, it is an important data point into our stewardship effort. Overall it is one of the features and an important one.
Jane: [00:16:29] Now you've mentioned the word there data. Which brings me on to my last question. Really, because all of what you're doing is incredibly difficult to do if you don't actually have access to high quality information. Right? So, tell us about how you get that information and how you think about corporate disclosure and data and how critical it is to what it is that you're doing.
Sindhu: [00:16:50] I think data, as we all know, is is fundamental. It's very important, especially when you're using it for decisions. It is ever so important. And as we know in this space, the data is evolving rapidly. The sophistication of data is improving. And there are mandatory disclosures introduced as well on especially on the climate side. So, it is a key feature. And I think there is that evolution we are seeing across the across the board when it comes, for example, on nature, it is still in its early stages, but we'll have to get to the maturity. But it is that maturity. It is the data sophistication, the confidence, which is a key part of the decision making process in terms of how we start using the data, the use case for the data in everything we do from a portfolio construction portfolio management perspective. Again, there is also as we know, there's loads of call for actions or to kind of help bring transparency to bring more disclosures on methodologies. That is really useful as a user of the data because, again, we're not looking for consistency. We want everybody to do the same thing. But as long as there's a clear evidence transparency on methodology, how data has been derived, whether it's been companies disclosed, data has been given, or if there's a more modelling or if the vendors are introducing modelling, that kind of information always helps to know where the data quality is. But data underpins everything. We really look forward to the sophistication which is coming in because there's so many data points on ESG, but more broadly, not just climate, nature controversies ratings scores, so on and so forth. And they are increasingly used across the investment community to make decisions. So very key feature, very important. And look forward to those consistency, the standardisation globally and evolution of the quality of data.
Jane: [00:18:32] Well, yeah, hopefully not too much longer to wait. Just a few more years, hopefully until we're that nirvana and everyone's reporting in the same way. And certainly, we recently backed a call to action for governments around the world to adopt ISSB at pace to achieve that Nirvana perspective. Sindhu, thank you so much for joining us. I think it's been really enlightening in terms of thinking about how the UK's largest savings organisation is embedding sustainability into the very core of its investment processes. So, thanks so much again for your time and sharing your insights and experience. Thank you Sindhu.
Sindhu: [00:19:03] Thank you for having me. Jane. It was a real pleasure.
Jane: [00:19:08] So that's it for this episode of the Sustainable Growth Podcast. I hope you enjoyed the conversation with Sindhu. If you've got questions, comments or someone you'd want us to talk to, then do get in touch by email at fmt@lseg.com. That's all from me but watch out for the next episode very soon.
