Series of interventions this week from investors boasting more than $1tr of assets under management hope to put climate change top of the agenda in corporate boardrooms
As the new financial year gets underway, investors are taking the opportunity to exert fresh pressure on global companies to step up their response to climate change.
In a series of letters to CEOs today, more than 60 major investors together boasting over $1tr of assets under management joined calls for companies around the world to drastically reduce the impact of their operations on the planet, in a bid to protect their financial assets from the impacts of climate change.
Led by campaign group ShareAction, the Investor Decarbonisation Initiative includes big name shareholders such as Aegon Asset Management, Candriam Investors Group, and Ethos Foundation - a collective of Swiss pension funds - which have sent letters to the CEOs of 15 companies urging them to step up their action on climate change.
Recipients of the letters include CEOs of major brands such as Morrisons supermarket chain, Netflix and the Walt Disney Company, as well as high carbon emitters from the energy and cement industries, according to ShareAction.
The shareholder letters urge companies to set ambitious science-based climate targets to reduce their greenhouse gas emissions in line with the goals set out in the Paris Agreement and to commit to sourcing renewable energy.
The investors stress in the letters that they want to "invest in environmentally and financially sustainable companies that are prepared for and contributing to the low carbon economy".
Other firms receiving letters this week include: Analog Devices, Canadian National Railway Company, CEMEX SAB de CV, Costco Wholesale Corporation, Deutsche Telekom AG, Fortum Oyj, Mitsui Fudosan, Skanska AB, STMicroelectronics NV, TransAlta Corporation, Whirlpool Corporation and Xcel Energy Inc.
It comes after news yesterday that momentum is growing behind the global Science-Based Targets (SBT) initiative, with more than 100 corporates having now had their emissions targets approved through the independent organisation.
Emanuele Fanelli, responsible investment manager at Aegon Asset Management - which holds £279bn of assets under management - said it was encouraging to see more companies setting SBTs, as climate risk disclosure was "in the best interests of the environment, society at large and company long-term investors".
However, he urged more to companies to join the movement. "In general, there is still a gap between the way companies identify climate-related risks and how they are preparing to tackle them," said Fanelli. "We hope this approach to target setting becomes the new norm and it will advance the implementation of the Paris Agreement."
Sophia McNab, project manager at ShareAction, agreed, pointing out that while pressure is undoubtedly increasing from many shareholders on their assets, disclosure of climate risk is still far from the norm. "I still hear from some companies that they've received no questions from investors on environmental issues," said McNab. "We welcome the leadership of investors in our networks but there is more work to be done by institutional investors."
By working with the companies they own, investors can provide crucial encouragement and support to prepare businesses for the low carbon transition, and the ShareAction initiative serves to demonstrate how more and more major asset managers are putting these tactics into action.
So could the coming financial year herald a sea change on climate risk disclosure in the corporate and financial sectors?
Louise Dudley, portfolio manager at Hermes Global Equities - which holds over £33bn of AUM - appears to be hoping so. Setting out the importance of companies understanding the risk posed by climate change to their business, and how to approach addressing those risks, she today called for 2018 "to be the year of investor leadership on climate change".
And it wasn't the only intervention from a major investor on climate risk today. Separately this morning, Legal & General Investment Management - one of the largest investors in the UK stock market - also released its annual corporate governance report, which reveals it is increasingly using its shareholder votes to effect boardroom change on climate change, diversity and other material ESG (environmental, social and governance) issues.
LGIM holds total assets under management of around £983bn, and in 2017 held 108 meetings with companies to discuss climate change, largely in the US and the UK, according to the report.
In the US, it voted in favour of 95 per cent of boardroom climate change resolutions, it revealed, while on average the world's top 10 asset managers supported just 21 per cent of climate related proposals in the country.
The investor has also today written to CEOs of its companies setting out how it expects them to address issues such as climate change and long term strategy, in which it specifically urges companies to align their strategies with the guidelines of the Taskforce on Climate-related Financial Disclosures (TCFD) and the goals of the Paris Agreement.
But despite the increasingly tough stance from investors on climate risk, Sacha Sadan, director of corporate governance at LGIM, emphasised that many companies were in fact already making strong progress on such issues on their own. "Due to the media spotlight on failures in corporate stewardship, it can seem as though many companies are not doing a good job addressing ESG-related matters," she explained. "In fact, the vast majority of companies are making significant progress - we simply believe there is more to be done. The same is true of asset managers. We, too, need to intensify our efforts to help deliver long-term value for clients by actively engaging with companies and regulators."
Such growing pressure from investors has clearly taken an effect in recent years, and the pressure only looks to be increasing.
Oil giant Shell, for example, has in the past year committing to halving the carbon impact from sales of its fuels by 2050 - yet for many shareholders this is evidently still far from adequate.
The firm is facing yet another shareholder resolution at its upcoming AGM next month calling on it to set clear targets for reducing its greenhouse gas emissions, which saw a slight uptick in 2017 despite pledging to increase its investment in low carbon technologies. But despite recently stressing that the company "must change" as the global economy decarbonises, Shell CEO Ben van Beurden yesterday urged investors on its board to reject the resolution, Reuters reports.
In a phone briefing with the media, van Beurden said the resolution was - in reference to Shell's recent 'Sky scenario' for a 2C world - "unnecessary given that we have already outlined an approach that is much wider-ranging and much more progressive".
Nevertheless, it seems an issue that is not going to go away anytime soon, and Shell is, like increasing numbers of corporates, likely to face increasing pressure from shareholders and campaigners until they deem company strategies to adequately disclose and address climate risk.
The financial year may have only just begun, but if today's series of interventions from asset managers are anything to go by, shareholders are clearly keen to ensure climate change is right up the top of boardroom priorities in 2018.
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