Keeping up the pressure
While the shift away from a carbon-intensive economy may appear incremental, I am confident that we are on the cusp of companies accelerating their progress, spurred by legislative, normative and economic pressure.
Good intentions are reflected in the number of companies committed to a trajectory that limits the global temperature rise to less than two degrees Celsius above pre-industrial levels – a goal of the international Paris Agreement on climate change.
Investors are right to support companies that take steps towards combatting climate change, but it is also right to expect material progress. If companies fail to act, investors have a responsibility to use all tools at their disposal.
The threat of divestment can be an effective one. It has certainly moved the dial on corporate attitudes, but it is not a panacea. Using ownership and stewardship as instruments – exerting pressure alongside other shareholders on companies to decarbonise – can be more powerful.
Investors with more than US $34 trillion in assets under management have signed up to the Climate Action 100+ initiative to ensure the world’s largest corporate greenhouse gas emitters take action on climate change. After engagement with Shell in 2018, the oil major not only committed to set carbon emissions targets, but linked executives’ long-term incentive plans to meeting them . BP has committed to align its capital expenditure strategy with the Paris Agreement.
The environmental risks of climate inaction are evident. Where companies do not act, they will not only expose themselves – and their investors – to financial losses, but they will miss opportunities for success that lie in tackling this challenge.
About Ben Constable-Maxwell
Ben is Head of Sustainable and Impact Investing, M&G. He joined M&G in 2003 as an Investment Specialist supporting the Global Equities team. He then moved to the Corporate Finance and Stewardship team in 2013, where he began focusing on corporate governance and ESG at international companies. Ben has been responsible for developing the incorporation of ESG in M&G’s investment processes and sits on M&G’s Responsible Investment Advisory Committee, which oversees Responsible Investment activities at M&G including the firm’s membership of the UNPRI. Ben graduated from the University of Newcastle-upon-Tyne with an Honours Degree in Classics before spending four years in the Equities team at Invesco Perpetual.