Regulators are increasingly looking at the financing of climate change and how the financial sector can support rather than undermine the low-carbon transition. An example of this is to make sure that banks align their lending policies with the carbon reduction targets being set by governments to meet the Paris Agreement.
“We know that many banks are still lending to high-carbon emitters without gaining any commitment from them to change to lower-carbon business models,” says Peter van der Werf, senior engagement specialist in the Active Ownership team.
“In this way, they are not aligning their lending activities with the Paris Agreement commitments. We expect the financial sector to gain much more insight into the climate risks and opportunities that are increasingly falling within their purview.”
The other side of the coin is targeting the high-carbon emitters themselves. This engagement program is aimed at companies that are falling behind in the transition.
“In the past, we have engaged with a large number of companies on the need to transition to lower-carbon business models – but some are still not making sufficient progress in that process,” says Van der Werf.
“So, for this program, we wanted to further shift gears and focus on the ‘worst of the worst’. These are the ones that won’t be pushed with a little nudge: they really need fundamental change to transition towards lower-carbon business models.”
A theme of combatting biodiversity loss began in 2020, and was boosted in September of that year when Robeco was one of 26 financial institutions to sign the Finance for Biodiversity Pledge.
“Investors are exposed to biodiversity loss predominantly through land use change as a result of deforestation through clearing land for expansion of agricultural production,” says Van der Werf.
“We want companies that produce soy, cocoa or palm oil, or companies that manufacture food to conduct a biodiversity impact assessment of their operations and/or supply chains. We also want them to develop plans to achieve net zero deforestation by 2023.”
A second theme for 2020 focused on the increasingly urgent need to achieve net zero carbon emissions by 2050. This was followed later in the year by Robeco’s pledge to achieve net zero greenhouse gas emissions across all its assets under management by 2050.
“As climate change represents a significant threat to investments, investors should align their portfolios with the goals of the Paris Agreement,” says Van der Werf.
“Key industries need be decarbonized. The energy industry accounts for more than half of global emissions. The steel and cement industries are also significant emitters.”
In 2019, an engagement program was launched to tackle challenges in the palm oil industry such as deforestation, which adds to climate change by removing important carbon sinks and destroying biodiversity.
“We’ve actively engaged with palm oil companies in the past, but we wanted to step up our efforts and make sure that palm oil-producing companies commit to producing palm oil sustainably,” says Van der Werf.
“We will focus on producers and traders in Malaysia and Indonesia, to bring them in line with the standards of the Roundtable for Sustainable Palm Oil.”
Going full circle, our global focus on collaborative engagement on climate change began in 2018, when we joined other members of the Climate Action 100+ initiative to target the world’s largest corporate greenhouse gas emitters.
As a joint leading investor, Robeco achieved an important breakthrough in December 2018 when Shell agreed to set short-term targets for decarbonizing its main oil and gas business, and link executive pay to these targets for the first time.
“This shows that engaging with the companies we invest in is a powerful mechanism and key differentiator in bringing change to help combat major challenges such as climate change,” says Van der Werf. “The Shell case shows just how well this approach can work.”
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The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
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