Engaging with companies to achieve net zero

A look at our progress after three years and next steps

12 Jul 2021

In this paper we share insights from our three-year engagement program on climate change.

We explain what actions we are taking based on the outcomes of our dialogue with a list of 45 companies that account for some 30% of carbon emissions of the FTSE All World Index.

We outline our plan for the next phase of our thematic engagement on climate change and how we are broadening the toolset for our investment professionals to integrate climate factors in their research and dialogue with company management.

Our thematic engagement program – collaborating with companies to support a transition

We believe that engagement and proxy voting can be used as important means to influence corporate behavior and accelerate action in those sectors where it is most needed. We equally believe that through dialogue we are able to transfer best practices within sectors. Our philosophy is to fully understand the business model of the companies we invest in, build relationships with management, provide feedback on current climate performance and set recommended actions to develop companies’ resilience in a low carbon economy.

In March 2018, we launched a three-year thematic engagement program on climate change. The original list of companies in focus were 49 oil and gas and utilities companies lagging on climate change performance as determined by our proprietary Climate Aware methodology. This methodology tilts towards companies that are better placed for the climate change transition, and tilts away from the companies which are lagging behind. We chose to focus on these two sectors initially as they impact mostly on climate change, but can equally provide capital and technologies to solve it.

Our engagement objectives have been built around the Task Force on Climate-related Financial Disclosure (TCFD) framework on governance, strategy, risk management, metrics and targets. Ultimately, we want to make sure that:

  • Boards are equipped to oversee management in setting and executing a climate change strategy;
  • Remuneration is linked to climate change targets;
  • Climate risks are fully integrated in risk management processes;
  • Business strategies are reflective of robust scenario analysis;
  • Emissions reduction targets are set for the short, mid and long term and cover all the most material sources of emissions;
  • Performance against targets is measured and reported; and,
  • Advocacy activities with policy makers is conducted in consistency with the achievement of the Paris Agreement.

While the effort has started in connection with a specific passive strategy, the engagement project has covered our financial exposure to these companies across passive and active strategies in both listed equity and fixed income.

Our engagement efforts in numbers:

  • Three years of dialogue
  • More than 200 meetings with management and representatives of the board of companies in the focus list through both individual and collaborative engagements
  • 7 Annual General Meeting (AGM) statements on progress made and areas for improvements in collaboration with co-leads within CA100+
  • 7 votes against the chair of the company or a relevant board member in 2020 and 2021
  • 1 investor/company joint statement on climate action in collaboration with co-leads within CA100+
  • 1 public letter to the South Korean Ministry of Economy and Finance (a major shareholder in a focus company) and 1 media article in the country in collaboration with other investors to express our concerns
  • Support for 2 global investor statements to governments on climate and one letter to the EU on the post-COVID-19 green recovery co-signed by other investors
  • We supported 26 shareholder resolutions on climate change in relation to the focus list of companies

More than 58% of companies in our focus list made good or excellent progress against set objectives.

Categories

Categories

Weighted engagement objectives met

Weighted engagement objectives met

Number of companies

Number of companies

Percentage

Percentage

Categories

Excellent

Weighted engagement objectives met

(76-100%)

Number of companies

8

Percentage

18%

Categories

Good

Weighted engagement objectives met

(51-75%)

Number of companies

18

Percentage

40%

Categories

Some

Weighted engagement objectives met

(26-50%)

Number of companies

17

Percentage

38%

Categories

Limited

Weighted engagement objectives met

(0-25%)

Number of companies

2

Percentage

4%

Categories

Total

Weighted engagement objectives met

-

Number of companies

45

Percentage

-

Reflecting on our results: Actions

Our experience over the last three years persuades us that engagement can be a force for good and contribute to better investment decision making. This is why we have identified concrete actions to take based on the outcome of our three-year engagement program on climate.

As investors, we need to allow companies sufficient time to understand our requests and act. At the same time, we want to see tangible progress and actions on material issues after a reasonable period of dialogue. Companies that do not make progress can potentially be excluded from future investment.

As a result of our findings over the last three years, we have excluded five companies from our Sustainability-focused (active) and active and enhanced-indexing (rule-based) climate aware investment funds.