NEST is an organization based in the United Kingdom. And they have a pretty significant task – to invest the pensions of over seven million UK workers. Like most modern companies, NEST recognizes that the world's climate is changing. Core to their investment philosophy, is looking to support the transition to a low-carbon economy. Unfortunately, they lacked an appropriate, cost-effective way to do so.
Identifying the issue
NEST had invested nearly GBP 7 million in one company and for some time they had been pressing this company to do more to transition to a low-carbon economy. "As responsible long-term investors on behalf of our members, we can't afford to ignore climate change risks and we've committed to being part of the solution." – Mark Fawcett, CIO of NEST.
For two years in a row, NEST voted against the aforementioned company's pay report and in 2017, they also voted against management for failing to link executive pay to low-carbon related targets. While the company did announce ambitions to reduce greenhouse gas emissions following shareholder pressure, it still didn't seem like much was changing.
Investing in what matters
It's situations such as these that led UBS Asset Management to start thinking about how to best bring about action. In 2017, in partnership with NEST, we established a rules-based equity fund aimed at providing investors a way to better recognize those companies that are at the heart of the low-carbon economy transition, as well as those that are adapting their operating models to help build a better future.
For organizations like NEST, the fund works to reduce investment in companies that are heavy carbon emitters, have fossil fuel reserves or are not making the sort of change needed to meet emission reduction targets. At the same time, the fund also focuses on increasing investment in companies identified as vital to combatting climate change – for example, those working on renewable energy. The fund also has a voting and engagement strategy to help encourage companies that are not making sufficient progress to do more to future-proof their business models.
Pioneering the future
Like NEST, we believe that leading companies are capable of reducing their carbon footprints and transforming their targets to be in line with the Paris Agreement. Long-term targets and intermediate objectives should not hinder the flexibility of companies to adapt and change their business in a staged and progressive manner. The motivation is there and it's time to step up.