Climate change

We believe that society must drastically reduce greenhouse gas emissions if we are to avoid the worst consequences of the climate crisis. It has become obvious that immediate climate action is needed in order to meet the goal of limiting rises in global temperature to 1.5 degrees Celsius.  

The individual and collective decisions we make as active investors can influence the nature and speed of this transition.  

This year marked the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 27), which was convened with hopes for more climate change action. While it was disappointing no significant strides were made in terms of emissions targets, the creation of a Loss and Damage Fund was a win for vulnerable countries faced with growing climate disasters.

We are playing an active role in the transition to a low-carbon economy by managing investment risks, identifying opportunities and driving change through our stewardship approach. 

We support the global transition to net zero emissions in line with the goals of the Paris Agreement, and in 2022, we made a public commitment in relation to net zero targets.  

We are committed to reducing greenhouse gas emissions across investment portfolios in line with a target of net zero emissions by 2050 (or sooner) and across business operations in line with a target of net zero emissions by 2030 (or sooner). This includes a range of targets committed to by investment teams over the short, medium and long term and an aim to increase the proportion of assets covered by formal net zero commitments over time.¹

Our net zero transition strategy is detailed in our Climate Action Plan (CAP), which was launched in 2022 and includes details on our investment and operational alignment. We have summarised our approach as ‘The 5 C’s of Climate Action’:

In response to various global regulations and guidance coming into force, we implemented a comprehensive Climate Risk Management Plan (CRMP), which sets out a pathway for our governance and oversight of climate-related risks and opportunities, our strategy and risk management approach, and the metrics we are tracking and targets we have set. The CRMP is based on the Task Force on Climate-Related Financial Disclosures (TCFD) framework. Our updated TCFD aligned disclosures are available in our firm-level Climate Change Statement (CCS), and in investment team level CCS’s. 

Going forward, we will regularly report on our progress against our net zero commitment at firm and investment team levels. The CCS and CAP can be found on our website, along with each investment team’s respective net zero targets. 

We have also upgraded our interactive climate risk dashboard to include a broader range of climate-related metrics as recommended by the TCFD. This information is available to our investment teams, other teams across the business, senior management and to clients, and we plan to make it publicly available on our website in 2023. 

1. The commitments and targets set out in this report are current as of the date of publication. Such commitments and targets are based in part on information and representations made to FSI by portfolio companies, together with assumptions in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies. As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations (which may prove to be inaccurate) and the realisation of such future matters (which are not guaranteed).

In addition to the firm-wide work on net zero targets and reporting, investment teams have made progress in the following areas:

The Fixed Income, Short Term Investments and Global Credit team has continued to engage with companies on their strategy and progress towards becoming net zero, with a focus on firms in the Australian and European banking sectors, utilities, materials, chemicals, and retail sectors. Notably, the team has begun engagement with Australian states and New Zealand local authority issuers on their sustainability approach including climate change and modern slavery and advocating for improved transparency and where relevant to set targets. The Sovereign, Supranational and Agency (SSA) sector has traditionally been the most difficult to gain access to and engage with on ESG issues, although the team has been encouraged by the receptive and open approach of these issuers.

In 2022 the Australian Equities Growth team started assessing the quality of portfolio companies’ transition plans and set multi-year engagement agendas for eight portfolio stocks either materially exposed to climate change or perceived to be lagging on climate commitments. On oil and gas specifically, the team set out the features it expects in a transition plan and engaged with producers on the alignment of capital expenditure with their climate commitments.

The Australian Small and Mid-Cap Companies team engages with companies in their portfolios on their strategy and progress towards becoming net zero. Some smaller companies have lagged the larger end of the market when it comes to putting net zero strategies in place. However, the team understands the challenges that some smaller companies face and is encouraged by the progress that has been made.

Stewart Investors has written to 108 companies to encourage them to measure and disclose their current carbon footprint, set carbon reduction targets appropriate for their business and industry and then report on their progress towards meeting them. The companies fall under three broad categories: those with neither climate disclosures nor targets (62 companies), those with disclosures but no targets (39 companies), and a small number (seven companies) with targets but no disclosures. At the end of 2022, the team had received responses from 82 of the companies and held three meetings with companies. Over the next year, the team will continue to follow up with these companies while assessing the progress of companies across its portfolios. The team recognises that climate change is relevant to different companies in different ways but that all companies need to make progress on reducing emissions and increasing resilience.

Global Listed Infrastructure (GLI) tends to have a higher level of carbon intensity given its exposure to the electric power and transportation sectors. To address the impacts of climate change, it is critical that infrastructure companies invest in adaptation and mitigation. Active investors can support this by directing capital to utilities that are leading the shift from fossil fuels to renewable energy, and identifying utilities with under-utilised wind and solar resources. The GLI team has committed to engaging with the 10 largest emitters in the portfolio and is working collaboratively with Climate Action 100+ to engage with two key companies on behalf of the group.

In 2022, Realindex released its climate statement in which it committed to raising issues of the transition to net zero with all companies it engaged with. During the year it engaged with 23 companies issues of improved emissions disclosure, setting science-based targets, and disclosure of capex expenditure needed for the transition.

As long-term investors, we know that the decisions we make today impact communities today, tomorrow and years from now. Responsible Investment is at the core of how we operate as a business and allocate capital, and we are committed to transparency and accountability regarding our performance in this area.