More companies are making greater efforts to set ambitious decarbonization targets, Robeco’s engagement specialists say.
The Active Ownership team engages with high carbon emitters led by the key fossil fuel producing and consuming sectors such as oil and gas, electric utilities and chemicals. The engagement seeks to meet the goals of the Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels by 2100.
In order to achieve this, the world effectively needs to become carbon neutral by 2050, which is a major challenge given its reliance on energy generated by fossil fuels.
“A low-carbon world looks very different to the one we live in,” says engagement specialist Sylvia van Waveren. “Low carbon requires an energy system that is predominantly fueled by renewables, with industries operating under a circular business model in which resources used, waste, emissions and energy leakages are minimized.”
“This energy transition entails some sectors incurring financial losses arising from volatile adjustments to asset values, or the higher costs of doing business. How companies respond to these climate-related issues can influence their financial results. Companies that are able to adapt will be the winners of this transition.”
In 2018, Robeco’s Active Ownership team launched its ‘Climate Action’ engagement theme with 13 companies in the oil and gas, electric utilities and chemical sectors. The engagement program encourages companies to integrate climate-related issues into their organization’s governance, strategy, risk management, metrics and targets.
The program has been aligned with the UN’s Sustainable Development Goals, targeting SDG 7 on Affordable and Clean Energy and SDG 13 on Climate Action. “Under these SDGs, it is essential to take urgent action to combat climate and its impacts,” says engagement specialist Cristina Cedillo Torres.
“At the same time, it is necessary to ensure access to affordable, reliable, sustainable and modern energy. Developing zero and low-emission energy sources is one part of the solution. But achieving a carbon-neutral economy will require many more innovative technologies, such as carbon capture and storage, to enable a fluent decline in fossil fuel use. Companies in the energy sector play an essential role in achieving these goals.”
The Active Ownership team assesses companies’ contributions to these SDGs by looking at their scores allotted by the Transition Pathway Initiative (TPI), a global initiative led by asset owners and supported by asset managers.
In this analysis, companies’ management quality and emissions performance are assessed to determine their incorporation of climate issues in their corporate strategy, emissions targets, strategic risk assessment and executive remuneration.
A key element of this engagement program is a collaboration with the Climate Action 100+ initiative (CA100+), a global group of more than 450 investors with collectively over USD 40 trillion in assets under management, launched in 2017.
“The collaborative engagement has brought important commitments to curb greenhouse gas emissions,” says Van Waveren. “Leaders of the energy transition have begun to differentiate themselves from peers by adopting stronger commitments to decarbonize their business operations.”
“Furthermore, we have seen some breakthrough commitments from companies in sectors where emissions are hard to abate, and a raft of disclosure commitments on corporate lobbying on climate change.”
“One of our objectives is for companies to implement a strong governance framework that clearly articulates the board’s accountability and oversight of climate change risks and opportunities, and to explicitly show the management’s role in assessing and managing these climate-related issues.”
This work is now bearing fruit, with a majority of companies agreeing that the viability of their own future depends on sustainability. “The companies under engagement have shown progress in their climate governance,” Cedillo Torres says.
“Most of the companies (8 out of 13) have shown clear board responsibility for climate changes risks and opportunities and were able to demonstrate a sound climate change management system.”
“Most of the companies under engagement (9 out of 13) have made positive progress in the alignment of their business strategies with the Paris Agreement goals. According to TPI’s research, three companies are aligned with the emissions reductions pledged by governments as part of the Paris Agreement via Nationally Determined Contributions. One company is aligned with the more ambitious climate scenario of 2°C.”
One fly in the ointment is lobbying – where companies either openly or covertly try to persuade lawmakers to water down climate change policies to protect their revenue streams in unsustainable businesses.
“Research suggests that many companies in high-emitting sectors are pursuing lobbying practices that aim to block or significantly weaken effective climate policy, either directly or via industry association memberships,” says Van Waveren.
“In our engagement, we have focused on securing enhanced disclosures on climate lobbying practices and urged companies to align their lobbying positions with their own climate change policies. So far, one of the companies under engagement has reviewed its membership of industry associations following the publication of their corporate lobbying report, even dropping memberships if there were significant misalignments.”
Future engagement will continue to focus on reducing emissions and trying to become carbon-neutral by the 2050 cut-off date, Cedillo Torres says. “It is encouraging to see that an increasing number of business leaders are committing to a low-carbon future and are setting net zero targets by mid-century,” she says. “But more action is needed.”
“So, as the move towards setting net zero targets by 2050 is imminent, our engagement activities going forward will be focusing first and foremost on achieving this net zero emissions objective with our target companies.”
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.