Week of 20 April 2020
As annual meeting season kicks off in this time of COVID-19, the climate crisis remains a priority for investors; Royal Dutch Shell and Barclays make new commitments, and a recent study describes the full array of engagement strategies – including naming laggards, drafting open letters, coordinating collective engagement and urging policy action – that asset managers are adopting to amplify their influence (Morningstar)
Asset managers have made clear that the climate crisis remains a priority for investors in this time of COVID-19:
- Blackrock, the world’s largest asset manager ($7.4tn AUM) has stated that its decision to prioritise climate change in 2020 is unaffected by COVID-19. The asset manager will continue to vote against the re-election of senior non-executive directors where company disclosure in not in line with the Task Force on Climate-related Financial Disclosures, or where relevant sustainability risks are not integrated into business strategy.
- Eight investment groups, including BNP Paribas Asset Management, DWS and Comgest Asset Management, have stated that tackling climate change must continue to be a priority for public companies in this COVID-19 era. Net zero targets for 2050 should not be abandoned in 2020.
- Chris Cummings, the CEO of Investment Association, the trade body for UK investment managers, has stated that climate change will top the agenda for investors during this year’s voting season, observing that “climate change will result in a significant loss of value for companies if risks are not properly managed.”
Companies have continued to make climate announcements during COVID-19:
- Royal Dutch Shell has became the largest global energy company to introduce a net-zero emissions target – with a commitment to cut emissions from its own operations, including the production of oil and gas, to net zero by 2050 and to reduce the carbon footprint of the products it sells by 65 per cent by 2050.
- Barclays, who according to the Rainforest Action Network has provided more than £100bn to the fossil fuel industry since the signing of the 2015 Paris agreement, has agreed to target net zero carbon emissions by 2050. This announcement follows an investor resolution coordinated by ShareAction calling on Barclays to phase out financing energy companies that are not aligned with the Paris agreement. The Barclays’ board is declining to support the investor resolution, but instead is placing a 2050 carbon emissions ‘ambition’ to a vote at its upcoming annual meeting.
A new report by financial research firm Morningstar, The Power of Dialogue, assesses 20 large asset managers’ approach to engaging on climate risk. Morningstar finds that:
- Two stewardship mindsets can be identified. For some asset managers, climate engagement is viewed narrowly as portfolio risk management (Dimensional, Invesco, TIAA / Nuveen, and T Rowe Price), while for others, climate-focused engagement is viewed as capital market stewardship (Aviva, BNP Paribas, Calvert (Eaton Vance), LGIM, Robeco, and UBS).
- Climate engagement disclosure tends to focus on activities, but not on outcomes or impact. Asset managers do not frame engagement disclosures within a theory of change, making it difficult to judge effectiveness. Further, when narrative reporting is included, the company engaged is rarely identified and the examples are only successes – they do not reflect on where engagement has failed or stalled.
- The report describes which asset managers are adopting engagement strategies – beyond individual meetings – that amplify their influence. These strategies include naming climate engagement laggards, sending an open letter to company CEOs, using shareholder resolutions as an active ownership strategy, engaging in collective investor engagements (for instance with Climate Action 100+), and using the investor collective voice to urge policy action (for instance to push governments to take specific actions implementing the Paris agreement).