MCAF COP28 Webinar summary Part I
Investor research opportunities at the intersection of climate and human mobility
To celebrate the coming together of global finance industry leaders for the COP28 in December, MCAF hosted a webinar on 5 December 2023, ‘The future of human capital in a hotter world.’ New York and London-based institutional investors and human rights and technology experts came together to share ideas on how investors can better understand the potential for human mobility to impact on risk management and capital allocation across different regions and industries. The investors shared insights on how human mobility could be integrated into existing climate-related research and engagement. A Privacy International expert provided updates on how investors can engage more effectively with companies operating in the border and surveillance industries to improve respect for the human rights of migrants and others crossing borders.
This is part one of a three-part MCAF blog series recapping key learnings from the webinar and sharing updated research resources to inform investor action in 2024. With Just Transition, human capital and innovation, and climate adaptation themes all firmly on the agenda at the COP28, investors are well placed to lead new research on the financial materiality and risks and opportunities linked to human mobility in a hotter world.
Webinar speakers included Sudip Hazra, Director of the First Sentier MUFG Sustainable Investing Institute; Marcela Pinella, Director of Sustainable Investing at Zevin Asset Management; and Lucie Audibert, a lawyer and legal officer working with Privacy International. Read on for insights into how your own investment research and engagement teams can begin to incorporate human mobility and climate adaptation themes into their existing work.
From migration-related investment risks to horizon scanning for new opportunities
The webinar introduced the MCAF Working Group, and our approach and process for convening finance industry leaders. MCAF Co-Chair Barbara Pomfret highlighted the group’s interest in investment risks associated with status quo migration approaches and how these might evolve in future. She also highlighted a range of outcomes that investors might seek to enable that would align with their existing commitments to sound risk management and respect for human rights. Echoing the ‘future taker’ or ‘future maker’ choice posed by Mercer on the issue of climate change back in 2015 [1], MCAF are working with investors to understand the interaction of migration policy with climate and other factors that could impact on the bottom line. Armed with better information, investors can be ‘future makers,’ shaping a more climate secure, humane, and effective future for human mobility.
MCAF
Figure: MCAF convenes investors to understand human mobility and migration as a megatrend that interacts with existing investor research and stewardship on human rights, climate change, and other megatrends.
Investors can engage with migration and climate change as macrotrends
The webinar audience learned about potential risks associated with the status quo approach to migration, focused on limiting movement, in particular for the most vulnerable classes of migrants, such as refugees and asylum seekers [2]. On the whole, MCAF’s analysis of existing socio economic research shows that migration is a very good thing. When investors, policymakers and other stakeholders have enough information and foresight to take a rational and sustainable approach to migration, human mobility can be a powerful wellspring of innovation, growing social and economic capital. In an era of accelerating climate change, safe pathways for human mobility will also be important components of wider climate change adaptation processes. Safe and stable pathways for human mobility will be key to enabling a just transition within countries and regions, and globally. Beyond risk analysis, investor participants in the Working Group are also considering upsides to a more effective and humane approach to human mobility at the G7 and beyond.
A new lens to apply to existing sustainable investment research and product development
Human mobility is a new lens to apply to existing sustainable investment research and product development processes. This includes building human mobility data points into climate change and human rights work, such as the recently launched Just Transition Criteria. This research can feed into investment decision-making processes and new product development. As we get underway with two new MCAF research tracks in January, we will be working with investors to build on work produced by existing initiatives, such as the Kaldor Centre Principles on Climate Mobility and the UN Guiding Principles on Business and Human Rights. MCAF’s work over the next 18 months will support new macro research on human mobility and help to inform investor analysis on specific companies in specific industries that offer stewardship and engagement opportunities.
Climate and migration as interlinked mega trends
Over the last 15 years Sudip Hazra has worked across jurisdictions assessing sustainability related risks and opportunities globally for investors. Prior to joining First Sentier MUFG, Sudip was a Director of ESG Research at US-headquartered asset manager Invesco and Head of ESG Research and Responsible Investment at Kepler Cheuvreux, the European financial services provider.
According to Hazra, climate and migration are two of the biggest themes that will affect investors in the long term. Drawing on the World Economic Forum’s Global Risk Reports [3], he highlighted how climate change has become an increasing priority, alongside involuntary migration. Hazra recognises that these risks will mature at different time scales but emphasizes that it is critical to understand that climate and social risks will increasingly become not only inter-related but inseparable. The WEF analysis distills a number of long-term risks into buckets, including extreme weather events and involuntary migration. But the reality for investors is that risk factors interact across industries. This highlights a need for more nuanced research that addresses the complexity of the real economy and the range of risks and opportunities that investors must navigate.
Figure: WEF 'Global Risks Report 2024:' https://www.weforum.org/publications/global-risks-report-2024/
Bringing a human mobility lens to sector specific and macro risk analysis
As more investors begin to assess and map the financial materiality of human mobility and migration policies across industries, they will also need to consider the time scales on which this becomes material for different industries. In some economies and some industries heavily reliant on migrant labour in agriculture or across the whole economy, such as in the United Arab Emirates, it is material today [4]. As climate and related environmental risks add to the complexity of analysis, investors need to first develop a baseline understanding but also a plan of action. Labour risks in supply chains related to extreme heat events, for example, may take years to become material in some regions, but may also arrive more quickly than expected in agriculture and manufacturing supply chains in a number of markets [5].
Hazra highlighted how labour risk and the links with migration policy need to be better researched by the investment community, echoing the evolution of discussions around climate change-related risks. Led by micro and macroprudential regulators, the dialogue and research on climate change has evolved rapidly and now covers stewardship, fundamental and macro research. For Hazra, the interaction of climate change with internal and cross border migration patterns is already material for investors. Investment research teams will need to focus on the potential interplay of physical climate and weather-related risks, within existing labour and political risk models.
Thematic research and engagement opportunities
In terms of existing thematic research and stewardship areas where investors could begin to integrate migration factors, Hazra flagged modern slavery risk and children's rights as key opportunities for investor engagement in the short term [6]. Near-term political risks may also arise from swings in migration policy, affecting a range of sectors for both high skilled and less skilled labour forces (both for direct employees and those working in supply chains), from tech to healthcare and agri-food. Political risk is probably the most problematic area for investors, requiring a nuanced approach to engagement to enable a stable workforce. More comprehensive mapping of a company's worldwide operations across all tiers of supply chains is required. The process has already begun in response to concerns over supply chain-related risks, and that aligns very much with the agenda of human rights engagement. Given the progress on mapping human rights and market risk in global supply chains following Covid-19, Hazra is hopeful that labour risk and migration policy research can start at the higher tiers of supply chain mapping globally.
Thinking long-term: adapting to heat stress and labour market risk
Hazra concluded his remarks with a view to long-term trends in global heating and potential for labour market impacts. He cited work on long-term heat stress scenarios for 2090. In the worst cases of failure to mitigate and adapt to climate change impacts, the UN’s International Organization for Migration (IOM) expect 2.8 billion people to be exposed to heat stress [7]. These significant risks to labour productivity need to be on investors’ agenda today, in order to inform dialogue with companies and governments on climate adaptation and mitigation strategy. If left unaddressed, larger climate impacts could amplify political risks and impair long run economic outcomes in a number of countries. These risks are represented in existing climate risk scenarios at the Network for Greening the Financial System, but currently do not address the role that human mobility and migration could play in enabling domestic and regional climate adaptation.
Setting the investor research agenda on human mobility
Hazra highlighted how investors interested in migration could get started on research. A first step is to consider the drivers of migration-related investment risks and then to undertake a detailed mapping of potential impacts of the identified risks, based on the investment universe and industry or sector focus. Similar to the approach taken on climate change, including seminal work that has developed out of the TCFD’s initial recommendations, investors will also need to understand potential migration response scenarios, and how different approaches to migration, including climate-linked movement, might impact investment strategy. This will include an assessment on the potential for slow and rapid onset negative climate events that may trigger significant internal and cross border movement. While it may not always be possible to disaggregate social, political and climate risk drivers of migration, having a clear understanding of these factors can help investors to develop a position on whether mobility could be a driver of returns or a risk multiplier for certain companies and industries.
According to Hazra, in order to understand the impact of human mobility trends , investors will need to research and better understand the intersections of physical, labour, and types of political risk that may crystalise across different timescales. In terms of mapping a systematic approach to integrating human mobility into existing research, recommendations from the recently concluded Taskforce on Nature-related Financial Disclosures (TNFD) are instructive. The TNFD centralises the concept of the “location” of interfaces with nature together with their dependencies and impacts. In the context of climate migration, the drivers of the movement of people and their reception into societies and labour forces come with their own range of increasingly large-scale impacts and dependencies. It is essential that investors and businesses develop both a mindset and operational processes to fully locate and integrate such impacts and dependencies. As witnessed with the shift of climate related investment research from niche to mainstream over the past decade, more granular analysis on migration policy and human mobility will be needed in order to manage downside risks and capture the upsides of a more effective and humane global migration system.
This is part one of a three-part review of the MCAF COP28 webinar.
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References
[1] Mercer (2019) 'Investing in a Time of Climate Change: the sequel' https://info.mercer.com/rs/521-DEV-513/images/Climate-change-the-sequel-2019-full-report.pdf
[2] FT (11.01.2024) 'The war on migration is meant to be lost: Politicians promise to cut immigration, while knowing their societies couldn’t function without it:' https://www.ft.com/content/ffffd9ed-6660-4d08-8c1c-440f8c50cecc
[3] WEF 'Global Risks Report 2022:' https://www.weforum.org/publications/global-risks-report-2022/
[4] According to the ILO, the United Arab Emirates (UAE) has an estimated population of around 9.3 million of which some 665,145 are UAE nationals, and 8.7 million migrant workers, most of whom are temporary contract workers: https://www.ilo.org/beirut/countries/united-arab-emirates/WCMS_533531/lang--en/index.htm
[5] ILO (2019) 'Working on a warmer planet: the impact of heat stress on labour productivity and decent work:' https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_711919.pdf; Verisk Maplecroft (2022) 'Heat stress to threaten over 70% of global agriculture by 2045:' https://www.maplecroft.com/insights/analysis/heat-stress-to-threaten-over-70-of-global-agriculture-by-2045/
[6] Lenton et al (2023) 'Quantifying the human cost of global warming:' https://www.nature.com/articles/s41893-023-01132-6; UNICEF 'Children and migration: rights, resilience, and protection:' https://www.unicef-irc.org/research/children-and-migration-rights-and-resilience/; investors who have committed to the UN Guiding Principles on Business and Human Rights also need to bring migrant rights into their analysis and reporting: https://www.business-humanrights.org/en/big-issues/un-guiding-principles-on-business-human-rights/
[7] 'Up to 2.8 Billion People Possibly Exposed to Heatwaves Worldwide by 2090: New IOM Analysis' (05.12.2023): https://www.iom.int/news/28-billion-people-possibly-exposed-heatwaves-worldwide-2090-new-iom-analysis