Sponsored Top investors step up engagement with companies to decarbonise portfolios

Top investors step up engagement with companies to decarbonise portfolios

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The head of BHP’s sustainability and climate change, Dr Fiona Wild, said fears that the pandemic would pause climate change action have failed to materialise and in fact, the urgency and momentum is greater than it was a year ago.

But the urgent response to the devasting pandemic highlights the effort required to deal with the potential impact of extreme climate events and serves to show what may lie ahead if the world experiences a further rise in global temperatures, she told the ASI conference on Wednesday.

“While the transition to a low carbon economy might not be moving at the pace we need, it is happening,” she said, adding that the world must galvanise if it is to achieve the ambitions of Paris agreement.

The panel discussion focused on how investors could use their influence to engage with companies and lobby for change.

Andrew Gray, AustralianSuper’s head of ESG said 75 of the emissions in the asset owner’s domestic equities portfolio come from just ten companies. “We engage intensely with those companies,” he said. “ Our engagement approach is really clear and we can tackle a very big part of the emissions.”

Gray ruled out selling stocks saying divestment only has a role at the margin. “Our role is to encourage those companies we think can make a low carbon transition. But if they can’t, and we assessed the risk as being too high, we would divest.”

But that doesn’t fix the problem, delegates heard.

A solid 54 per cent of Austalia’s emissions come from business processes, with 32 per cent from electricity generation. “That tells us that investors need to tackle the broad-based economy. Therefore, effective engagement with investee companies is key to make that transition to net-zero emissions,” Gray said.

Gray, who chairs the Climate Action 100+, considers shareholder resolutions to be a good engagement tool since they detailed specific issues, provided a timeline and prompted a dedicated outcome – the date of the vote.

“Resolutions differ in terms of quality so it’s up to investors to support those that will have a successful outcome,” he said.

Engagement is everything, Wild added, to get a sense of current pressure points and to understand how stakeholder views alter over time.

“It’s also a way to stand up for what we believe in,” she said. “We are never going to be in a situation where everyone agrees.”

The BHP executive believes the mining giant has a major role to play in influencing the resources sector since when BHP moves it has a ripple effect across the rest of the industry.

As for ‘activist investors’ Wild argued that there was a role for all stakeholders – that all views were a valuable signal as to whether BHP was headed in the right direction.

Talking to stakeholders also gave the miner a chance to discuss climate change challenges – such as identifying emissions in the value chain when BHP doesn’t have operational control.

Last week, BHP confirmed that it will reach net-zero operational emissions by 2050, target a 30 per cent reduction of operational emissions by the year 2030 and work to decarbonise the value chain especially for the steel and maritime industries.

“I think this is an important step forward for companies to think about the influence they can exert across value chains,” Wild said, adding that BHP will link executive bonuses to its progress.

During the session, ClimateWorks Australia’s Amandine Denis-Ryan, argued the superannuation sector needed to do more to address climate change risks.

According to ClimateWork’s latest report on Australia’s 20 largest asset owners, three (Cbus, HESTA and UniSuper) have committed to achieving net-zero by 2050 across their entire portfolio.  One, Aware Super, aims to transition its portfolio towards net-zero by 2050 but has not committed to an explicit target.

Worse, the analysis found 12 funds (60 per cent) are moving to reduce portfolio emissions intensity, but activities are not yet aligned with net-zero by 2050. A further 25 per cent have no portfolio emissions reduction targets or commitments.