Year in review 2022 - 2023 | Sustainable investing

Pathway to decarbonisation

Over the past 12 months, one area of focus for us has been high-emitting sectors and their decarbonisation plans. In particular, the oil and gas sector is facing greater investor scrutiny and has been subject to more shareholder action. Investors have targeted companies where they feel that there has been insufficient climate transition planning. Locally, we saw this occur when a company director at Woodside received an unprecedented 34.8% ‘against’ votes for not meeting investors’ expectations on its decarbonisation plans. Internationally, BP and Shell saw greater support from
investors for activist shareholder resolutions that urged tougher climate targets.

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Furthermore, the Australian Government is also placing greater emphasis on high-emitting sectors and has reformed the Safeguard Mechanism to reduce emissions at Australia’s largest industrial facilities. The reforms create economic incentives to reduce carbon emissions on an annual basis, and the natural gas industry was a key target. Globally, the oil and gas sector will also be in the spotlight at COP28 in Dubai later this year, aptly coined the Oil and Gas COP.

Following publication of our Decarbonisation and Mining Paradox paper last year, we have seen increased interest in critical minerals and their role in decarbonisation. 

The uptake of electric vehicles (EVs), coupled with policies like the Inflation Reduction Act in the US, highlighted the importance of ensuring appropriate supply of critical minerals.

We have also seen the Australian Government respond with the launch of the Critical Minerals Strategy and the announcement of the Australia–US Compact. This remains a key focus area for Fidelity as we have seen increased interest from institutional investors for exposure to this thematic.

The ‘S’ in ESG

Modern slavery continues to be a pertinent issue. This year, we published our first mandatory report and strengthened how we capture modern slavery related risks in our proprietary ESG ratings. These enhancements will help support our engagement with companies. 

Another area of focus has been on ‘culture based financial risks’ which are created by systemic harmful behaviours in the workplace, like bullying or sexual harassment. Movements like #MeToo have shone a spotlight on these risks and have demonstrated that societal expectations have evolved and are even being incorporated into regulation, such as Australia’s new Respect@Work bill. We are exploring how we can better understand and consider these risks in our stewardship efforts. 

An eye on regulation 

Globally, we are seeing regulators focus on standardisation. For example, the International Sustainability Standards Board (ISSB) is consolidating and driving consistency across ESG reporting. Locally, we are seeing interest from the Government to develop mandatory climate disclosures.  Additionally, regulators are closely monitoring greenwashing from corporates and investors, and we anticipate more enforcement activity over the next 12 months.

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