Case study: Climate action engagement 2020

Climate change is one of the most pressing challenges facing us today, and success in limiting the adverse effects of our current climate change trajectory requires the decarbonisation of our economies.

At EQ we believe every member of society has a responsibility in aligning themselves with a sustainable future, and that is why we committed to become carbon net-zero by 2030. This means that we are looking to reduce our activities’ direct emissions, but also that our active ownership of our investment portfolios requires climate action.

Collaborative engagement through Climate Action 100 Plus

This year we have increasingly used our investor network to collaboratively push for positive change. Despite the EQ Positive Impact Portfolios not investing in the largest polluters, we think want to take opportunities to help advance laggards that are willing to transition.

By joining Climate Action 100+ (the largest investor collation to exert pressure on the world’s most carbon polluting listed businesses) we have leveraged the collaborate shareholding to directly engage with Rolls Royce on their climate change strategy. The UK based power systems engineering company, manufactures the majority of the world’s airplane engines, and thus not only has large direct emissions from its operations (scope 1&2) but significant influence on the emissions by the aviation sector. Through 2 meetings with management level at Rolls Royce in Derby, and virtually later in the year, we encouraged the firm to set emissions targets, and demonstrate its long-term business strategy in line with a low-carbon economy scenario. It is a great achievement to note that Rolls Royce, despite financial difficulties from the COVID pandemic, has committed to become a net-zero carbon business by 2030, alongside a wider ambition to enable sectors it sells to in becoming net-zero by 2050. The latter is particularly impactful, as it will have knock on effect on bring down emissions across the aviation value chain.

Leveraging investor coalitions to drive positive change

Within the EQ Positive impact portfolios, we monitor our carbon footprint of underlying investments. To advance climate action across sectors, we have joined ShareAction’s investor decarbonisation coalition, which intends to engage with global businesses on setting material emissions reduction goals. We co-signed letters to 27 companies this year (e.g. to GlaxoSmithKline, Welltower and Vodafone), including requesting these joining RE100 (100% renewable energy targets) or setting science-based emission targets.

Pushing for best-practice within the industry

Within our fund manager engagements, we have used this year to understand how asset managers are currently integrating climate risk into their investment and stewardship activities, as well as their internal business operations – and push for positive change on highlighted weaknesses. We also use independent research reports to support our efforts to lift the sustainability ambitions of the portfolios. For example, a RAN report titled “Banking on climate change” demonstrated the significant role of global banks in fossil fuel expansion financing. We initiated engagement with all relevant fund managers on how these risks are integrated in investment decision-making or stewardship. An example of demonstrated and implemented positive change is from Rathbone’s Ethical Bond. The fund manager and team innovated the fund’s investment policy regarding bond that are issued by banks making outsized proportions of their loans to oil and gas businesses, taking an activist stance to communicate this rationale when not subscribing to new bond issuances.