Driving the change on climate

For many investors, the long-term risks and opportunities of climate change are a key priority. That’s why climate considerations are a crucial element of their financial analysis.

08 Oct 2020

Accounting for climate change is one thing, but what about being part of the solution? By driving positive action on climate change through working with corporates and encouraging them to adapt their business models to a climate smart future?

Learn more about our Climate Aware offering at UBS Asset Management

This is where the role of company engagement comes to the fore, both for active and passive investors.

For active investors, engaging with those companies they invest in can help to develop a deeper, forward looking understanding of the ways in which a company is dealing with climate change in its strategy and risk management systems.

Meanwhile, passive investors can use corporate dialogue as a way of addressing large negative externalities which affect the environment, the economy, and ultimately index returns over the long-term.

In our view, there are three key steps to implementing a successful corporate engagement strategy and driving meaningful change.

Prioritize. Effective engagement involves many conversations over a lengthy time-frame, to concentrate on those companies which are most relevant in terms of risks and opportunities.

Our own strategic engagement program on climate targeted the oil, gas and utilities sectors, given their significant contribution to global CO2 emissions. By applying our proprietary ‘Climate Aware’ methodology to screen the FTSE Developed World Index components, we’ve narrowed our target list down further to focus on 50 companies which together represent 27% of the direct and indirect CO2 emissions of the FTSE World Index as a whole.

This clear focus helps our engagements have the greatest impact in mitigating environmental risk.

Use a clear framework. Ensure the framework is financially material and clearly understood by corporate management teams. In our case we based our framework around the TCFD given it’s internationally recognized by both corporates and investors as a means of assessing the impact of climate change on business strategy, and for reporting those impacts in traditional financial disclosures.

Collaborate. To maximize the effectiveness of our engagements, we’ve collaborated to align our climate engagement strategy with other asset owners and managers.

Collaboration offers several advantages, one of which is consistency: corporates receive a single clear message from the financial community, giving them more time to focus on tackling the core issues linked to climate change. It also allows for a cross-sharing of investor perspectives and expertise, which helps to better challenge and support corporates in setting more ambitious climate goals and actions.

One important investor initiative which we’re a part of is Climate Action 100+. It currently comprises over 500 investors, representing more than USD 47 trillion AuM. Together they’re engaging with companies to:

  • Curb emissions
  • Improve governance and
  • Strengthen climate-related financial disclosures.

The companies include 100 ‘systemically important emitters’, accounting for two-thirds of annual global industrial emissions, alongside more than 60 others with significant opportunity to drive the clean energy transition. Currently UBS-AM is part of 29 CA 100+ coalitions and leads on eight of them.

If you’d like to learn more about our climate engagement program and read a company case study to see how real change can be brought about, read our latest contribution to the CFA Institute - CLIMATE CHANGE: A NEW DRIVING FORCE FOR ENGAGEMENT by Christopher Greenwald and Valeria Piani

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