This article is from the latest Good Investment Review, which you can download free here.
After fund managers invest clients’ money in portfolios of equities, bonds, and other holdings, they continue to actively manage and monitor the investments. An important part of the role of overseeing the portfolio is to use the influence that comes with being a shareholder to drive change. This is known as “active ownership”.
Not all fund managers take this as seriously as we do: we are committed to using our influence to drive change that we believe will grow the value of savers’ investments. In practice this means engaging with the managers and boards of the companies in which we invest across a range of topics relevant to a company’s long-term success. These include environment, social and governance (ESG) topics but, as you’d expect, we also engage on other critical factors such as good quality financial returns.
Different funds have different holdings, and holdings change over time. But here are three examples of Schroders’ engagement with major businesses.
Barclays Bank
Banks face substantial financial, regulatory, and reputational risks due to the global transition to a low-carbon economy. A low-carbon economy is one that aims to minimise greenhouse gas emissions by moving away from industries and practices that heavily rely on fossil fuels. Typically, such an economy would shift towards cleaner and more sustainable energy sources, such as renewable energy.
While the carbon footprint (a measure of the amount of carbon dioxide released into the atmosphere) of a bank’s operations—such as its offices and branches – is relatively small, the emissions financed by the bank can have a considerable impact on the planet. So a key metric for banks in the context of climate change is their “financed emissions”. Banks have a vital role to play in supporting their customers’ transitions away from high-emission activities.
Our engagement with the company on climate change has been intensive, with discussions taking place around three times a year since 2020. Our first recorded engagement with Barclays on this topic dates back to 2008.
Initially we encouraged the company to measure emissions related to its financing activities and develop robust climate policies. As Barclays made progress, our engagements have become more technical, focusing on the completeness of targets and assurance over emissions measurement. In 2020 Barclays announced its commitment to net zero emissions (a target of completely negating the amount of greenhouse gases produced by human activity), and in 2023 set emission reduction targets for six high-emitting sectors.
The bank’s absolute emissions linked to its financing of the energy sector have fallen by approximately a third over the last three years, and Barclays has now committed to stop providing financing for oil sands exploration and production companies; and for the construction of new oil sands production or processing assets or pipelines.
Amazon
We have been engaging the tech and retail giant since 2015. In the past, engagements focused on pushing for greater disclosure on staffing culture and turnover rates. Amazon has improved disclosure, but we continue to encourage the company to consider providing a more in-depth breakdown of health and safety statistics.
Over 2022, we engaged with Amazon several times on the root cause of safety issues. We wrote to the company ahead of its annual general meeting (AGM) in 2022 and went public with concerns by pre-declaring our voting intentions on workforce issues ahead of the 2022 AGM. This led to us supporting three different shareholder proposals related to workers.
We continued our dialogue on worker issues throughout 2023. In January, we wrote to the company to reiterate our request for increased transparency on health and safety and turnover rates, and Amazon invited us for a tour of a fulfilment centre. We reiterated our perspectives on health and safety in writing to the company and ahead of the May 2023 AGM. We met again in person in October 2023 to discuss a range of sustainability topics, and our engagement continues.
Sappi
Sappi operates in the paper manufacturing industry, an industry deeply intertwined with environmental and social issues. Key challenges include deforestation, carbon emissions and human rights. Sappi’s operations span across the globe, and certain regions present unique hurdles. One example is South Africa, where sourcing renewable energy for the company’s operations is a challenge due to the energy grid’s heavy reliance on coal. The firm has been the subject of ongoing engagement efforts by Schroders.
We requested the company outline its short-term emission reduction targets for the next three to five years, detailing region-specific renewable energy targets, and provide insights into its long-term climate strategy beyond 2030.
This year, our engagement efforts have broadened to address deforestation, water stress, and human rights more directly.
The company is making progress. Last year, its climate target was verified by the Science Based Targets initiative (SBTi) and the company is now working on its next set of targets, which are primarily focused on forestry certification. SBTi provides a framework and methodology for companies to set greenhouse gas emissions reduction targets that are aligned with the goals of the Paris Agreement. The Paris Agreement aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5 degrees Celsius.
Risk warning: Past performance should not be seen as an indication of future performance. The value of investments may go down as well as up and you may not get back your original investment.
