Looking after the sustainabily minded long haul investor

I have been intrigued for some time over the question whether a more active approach to incorporate sustainability into their business thinking within listed organisations helps them shape a longer term communication with thier investors, and ultimately the type of investors they attract.  In particular, is one of the strategic benefits of sustainability leadership the attraction of longer term minded investors who can help an organisation break out of the short-term quarterly demands of stock players, which I feel hinders the development of more comprehensive sustainability plans and business strategy.

There is an increasing number of large investment funds out there in the world who have started to fully comprehend the global threat of climate change to their  investments and the need for concerted action by national and business policy makers to take a more active approach to the mitigation of atmospheric releases of carbon and  climate-related risks.  Governments cannot do this alone and the business community has a key role to play.  The question is – are there printed words on climate change matching thier in-house activities and the culture being set by corporate leaders?

IIGCC

I was therefore intrigued to read of an initiative led by the Swedish pension fund AP7 and the Church of England Pension fund, who with the support of other 160 members of the Institutional Investors Group on Climate Change (IIGCC), who collectively manage about €21 trillion ($24 trillion) in combined assets wrote a letter to the CEO’s of 55 companies – all identified as the worst carbon emitters in seven industry sectors.

The investment group had also taken note of whether the companies involved had a corporate position that matched their lobbying on climate policy, their influence on policy-makers and on whether their CSR publicly stated corporate climate policies matched those of the trade associations they were members of and who acted on their behalf.

The Letter to the CEO’s

The letter addressed to the chair of each company said:

“We would ask you to review the lobbying positions being adopted by the organisations of which you are a member.  If these lobbying positions are inconsistent with the goals of the Paris Agreement, we would encourage you to ensure they adopt positions which are in line with these goals………”

In addition they clearly set out their expectations as investors on climate change lobbying, which I feel sends a strong and very interesting message out into the global marketplace.

We believe that companies should be consistent in their policy engagement in all geographic regions and that they should ensure any engagement conducted on their behalf or with their support is aligned with our interest in a safe climate, in turn protecting the long-term value in our portfolios across all sectors and asset classes.
Specifically, we expect those companies that engage with policy makers directly or indirectly on climate change-related issues to:

Support cost-effective measures across all areas of public policy that aim to mitigate climate change risks and limit temperature rises to 2 degrees Celsius. This support should apply to all engagement conducted by the company in all geographic regions, and to policy engagement conducted indirectly via third-party organisations acting on the Company’s behalf or with the company’s financial support.

Establish robust governance processes to ensure that all direct and indirect public policy engagement is aligned with the company’s climate change commitments and supports appropriate policy measures to mitigate climate risks. Within this, we expect companies to:

  • Assign responsibility for governance at board and senior management level.
  • Establish processes for monitoring and reviewing climate policy engagement.
  • Establish processes to ensure consistency in the company’s public policy positions.

Identify all of the climate change policy engagement being conducted by the company either directly or indirectly, across all geographic regions.

Assess whether this engagement is aligned with the company’s position on climate change and supports cost-effective policy measures to mitigate climate risks.

Act in situations where policy engagement is not aligned. For third-party organisations, actions could making clear public statements where there is a material difference between the company and third party organisation’s position, working with the organisation to make the case for constructive engagement, discontinuing membership or support for the organisation, or forming proactive coalitions to counter the organisation’s lobbying.

Report publicly on:

  • The company’s position on climate change and policies to mitigate climate risks.
  • The company’s direct and indirect lobbying on climate change policies.
  • The company’s governance processes for its climate change policy engagement.
  • The company’s membership in or support for third-party organisations that engage on climate change issues.
  • The specific climate change policy positions adopted by these third-party organisations, including discussion of whether these align with the company’s climate change policies and positions.
  • The actions taken when the positions of these third-party organisations do not align with the company’s climate change policies and positions.

These are interesting questions, not only do they start to get to the heart of how an organisation goes about its CSR or ESG activities, but also the extent to which corporate disclosure really reflects the culture that is being initiated internally by its leadership group.  I welcome the initiative and the thinking behind the initiative’s leaders in AP7 and the #Church of England pension funds.

Out of curiosity the 55 companies written to can be found here.

 

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At Leading Green, our approach to sustainability in business consulting encourages our clients to look closely at their own internal leadership strengths. Helping them adopt an inquisitive state of mind and supporting them in how sustainability can support their long-term business strategy.

 

 

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