Industry

New Investor Climate Engagement Toolkit “Codifies Best Practice”

Stewardship and corporate engagement are “vital levers” to ensure companies meet decarbonisation targets, says IIGCC CEO. 

The Institutional Investors Group on Climate Change (IIGCC) has launched a new toolkit to help asset owners and managers enhance their stewardship practices when engaging with companies on their progress transitioning to net zero greenhouse gas (GHG) emissions.  

“Good stewardship and corporate engagement are vital levers at investors’ disposal to drive the rapid acceleration in decarbonisation required to halve emissions by 2030 and beyond,” Stephanie Pfeifer, CEO of the European investor membership body, told ESG Investor. 

This starts by ensuring high carbon emitting companies have credible transition plans which, critically, are then implemented and successfully progressed. Where they aren’t, investors have a range of tools and escalation actions they can use to hold companies to account.” 

Developed in partnership with UK pension scheme Railpen, the Net Zero Stewardship Toolkit is a systematic framework consisting of six key steps that “codifies best practice for all investors”, according to Pfeifer.  

These include setting net zero alignment criteria, developing an engagement strategy for priority companies, and introducing a baseline for engagement and voting across all portfolio companies.  

Asset owners and asset managers should also make sure their engagement priorities and objectives are aligned, IIGCC noted, adding that this will “reduce duplication and enhance impact by collaborating where valuable”.  

“The toolkit enables asset owners and managers to set their expectations for companies and take the relevant voting and escalation decisions if companies are not meeting these, which may not previously have been enabled by voting policy,” said Pfeifer.  

To ascertain the framework can be easily integrated into investors’ existing strategies, it is aligned with the Net Zero Asset Managers initiative and the Paris Aligned Asset Owners initiative. 

The toolkit follows the IIGCC Paris Aligned Investment Initiative’s (PAII) Net Zero Investment Framework (NZIF), which more than 50 asset owners are using to decarbonise their investments across listed equities, corporate fixed income, sovereign bonds, real estate and private equity.  

IIGCC has more than 375 members, mainly pension funds and asset managers, across 23 countries, with over €51 trillion in assets under management. 

Stewardship as silver bullet 

The effectiveness of existing climate-related engagement efforts has been challenged by a new report claiming that some asset managers are instead “actively maintaining the status quo”.  

According to NGO Reclaim Finance’s Asset Manager Scorecard, the 30 asset managers assessed collectively hold stakes worth more than US$82 billion in companies developing new coal projects, despite the fact 25 of the 30 are members of the Net Zero Asset Managers initiative and have claimed they are “pushing companies to improve on climate-related issues”. 

The same 30 asset managers also hold a total of US$468 billion in 12 major oil and gas companies with “massive upstream expansion plans”, the report added.   

Further, only eight have publicly asked companies to adopt short-term emission reduction targets, with just one asset manager requiring absolute emission reductions including Scope 3.  

“Asset managers are not engaging companies on the key climate issues when it comes to limiting global warming to 1.5°C,” said Lara Cuvelier, Campaigner at Reclaim Finance.  

“It’s also striking that they are actually sending the opposite signal because they are still buying new debt from fossil fuel developers. Asset managers that provide fresh cash to companies that are ignoring climate science are purely and simply pouring more fuel in the fire,” she said. 

Reclaim Finance has called for asset managers to adopt more robust policies tackling fossil fuel expansion, including establishing deadlines for fossil fuel companies to stop developing new coal and oil and gas projects, as well as announcing sanctions and exclusions for companies that fail to respond to their climate-related demands. 

Engagement over divestment 

Many investors have continued to cite the value of engaging with companies in hard-to-abate sectors, as opposed to divesting and potentially allowing less climate-minded investors to facilitate climate-damaging products and operations.  

“The argument that investors should simply and immediately divest from high carbon assets is not a viable strategy. Decarbonising a portfolio does not decarbonise the real world. Net zero can’t be achieved by divestment alone; a significant portion of getting to net zero emissions by 2050 will come from driving change at the largest emitters,” Pfeifer said.  

Asset owner the Canada Pension Plan Investment Board (CPP Investments), which manages C$550 billion (US$432 billion) in AUM, has adopted an active engagement strategy to pursue carbon neutrality, arguing that “blanket divestment” is not the best way to maximise returns without undue risk of loss.  

This week, AXA Investment Managers also published a new voting policy outlining environmental and social issues that investee companies must address or be subject to voting action.  

One of AXA IM’s new priorities will be to assess the consistency of investee companies’ transition plans against their climate strategy. The firm will ask companies to report on their progress achieving their transition objectives during AGMs.  

“To play a key role in financing the transition to a greener and more sustainable world, engaging and then exercising our voting rights as an investor is a fundamental aspect of our ability to influence the decisions and the roadmap of the companies we invest in,” said Clémence Humeau, Head of Responsible Investment Coordination and Governance at AXA IM. 

The UN-convened Net Zero Asset Owner Alliance recently emphasised the importance of asset owners taking a multi-pronged approach to climate engagement, collaborating with policymakers and asset managers as well as companies.  

Pfeifer noted that the outcomes of good stewardship and corporate engagement can be seen by the progress made by Climate Action 100+. 

“Before the initiative launched only five focus companies had set net zero emissions targets. Now over 110 (69%) have set net zero emissions commitments covering at least one scope,” she said.  

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