2021/22 year in review: Sustainable investing
Engagement is the key to achieving real world outcomes
The core part of our approach to sustainable investing is to work with investee companies to achieve positive outcomes in the real world. We do this through our engagement program. Engagement in sustainable investing comes in different shapes and sizes. Over the last year, we have been implementing different tools to achieve change in how companies operate.
1. Implementing our climate and diversity proxy voting policy
Our new proxy voting policy allows us to vote against directors of companies who are not meeting our minimum expectations regarding the diversity of their boards or management of climate risks.
- (a) Climate change: We vote against companies that are highly exposed to climate risks and have not demonstrated through their disclosures that they are managing those risks appropriately.
- (b) Board diversity: We vote against companies that don’t have a minimum of 30% female representation on the board in developed markets and 15% in emerging markets.
This policy has helped us have better conversations, which have resulted in meaningful change – specifically in the diversity of some boards’ composition or climate change risk management.
We believe these changes will help those companies deliver better financial and sustainable long-term outcomes for investors.
2. Helping companies navigate the evolution in sustainability
The speed at which sustainability has evolved has taken many companies by surprise, with many of the directors we speak with indicating that this is something their companies and boards specifically grapple with. In response, we have sought new ways to communicate more effectively with company directors through our ’ASX Director Webinar Series’. Topics so far have included investor sentiment post COP-26 and the implications for asset managers like Fidelity, as we seek to de-carbonise portfolios, as well as company director remuneration and how asset managers will be looking to vote on these issues going forward.
Another development in the Australian market has been the ‘Say on Climate’, where companies are encouraged to adopt an annual shareholder vote at their Annual General Meeting (AGM) on their climate strategies. Whilst there are mixed views in the industry about the effectiveness of this tool, we think it is an opportunity to have more robust conversations with companies on their approach. We recognise that placing binary vote (for/against) is a simplistic way to categorise these climate plans which are complex and nuanced, therefore we aim to provide detailed feedback to companies on the strengths and gaps in their plans following our vote.
Our goal is to create a feedback loop between companies and investors ahead of and after votes, to ensure we are aligned in our goal to achieve net zero, in a way that best benefits companies, shareholders and the world.
3. Enhancing how we integrate sustainability: climate ratings
This year, we launched enhanced versions of our sustainability and climate ratings. Our ratings seek to take ESG to the next level by providing a forward-looking view of the extent to which a company’s performance on material sustainability issues will support, or impair, long-term value creation for investors.
A key strength of the ratings is that they follow a comprehensive and nuanced framework which applies ‘double materiality’. This concept focuses on an evaluation of the financial risk of the social and environmental factors for companies. But beyond that, it also looks into the actual and potentially far-reaching impacts of a business on people and the planet. Our ratings also allow us to have more expansive conversations with companies. We can share how they compare to peers, how we assess them on multiple issues, and provide them with insights into how we make investment decisions.
A core component of our net zero emissions targets is our new climate ratings. The ratings aim to highlight how a company aligns with our net zero targets by categorising companies in five buckets depending on the strength of their approach to climate related risks. These ratings strengthen our engagements with companies as we can share with them their strengths and weaknesses, and where we expect to see
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