The net zero classification of companies
First Sentier Investors follows guidance from the Institutional Investors Group on Climate Change (IIGCC) on classifying companies' net zero progress.
Companies can be classified as a) achieving net zero, b) aligned to a net zero pathway, c) aligning towards a net zero pathway, d) committed to aligning, or e) not aligned. This classification follows criteria outlined by the IIGCC.
- Ambition A long term 2050 goal consistent with achieving global net zero
- Targets Short- and medium-term emissions reduction target (scope 1, 2 and material scope 31)
- Emissions performance Current emissions intensity performance (scope 1, 2 and material scope 3) relative to targets
- Disclosure Disclosure of scope 1, 2 and material scope 3 emissions
- Decarbonisation strategy A quantified plan setting out the measures that will be deployed to deliver on greenhouse gas targets, proportions of revenues that are green and, where relevant, increases in green revenues2
- Capital allocation alignment A clear demonstration that the capital expenditures of the company are consistent with achieving net zero emissions by 2050
Committed to aligning
Increasingly companies are making a first step based on criteria 1 (Ambition). These companies can be considered as ‘committed to aligning’.
Achieving criteria 1, 2 and 4 (Ambition, Targets and Disclosure), with some evidence (partial fulfilment) of 5 (Decarbonisation strategy).
For high impact sectors3, achieving all six criteria. For other material sectors4, achieving criteria 1, 2, 3 and 4 (Ambition, Targets, Emissions performance and Disclosure).
A company which is already achieving the emissions intensity required by the sector and regional pathway for 2050, and whose ongoing investment plan or business model will maintain this performance.
1 Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 covers a company's 'value chain' emissions and is divided across 15 categories for both upstream (supply chain) and downstream activities (lifecycle of products). Scope 3 emissions can differ for each company and sector, and the materiality of underlying categories will vary widely. For example, category 10 (Processing of Sold Products) and category 11 (Use of Sold Products) will be the most relevant driver of emissions for a Metals and Mining company. While for a financial institution, category 15 (Financed Emissions) will be the main driver of emissions.
2 Revenues associated with activities compliant with verifiable frameworks such as the mitigation criteria under the EU taxonomy for sustainable activities (from both categories ‘substantial contribution’ and ‘enabling activities’). They could include, for example, revenues associated with clean technologies for certain sectors. More clarification on this shall be available as the EU taxonomy further develops and we will also apply other national or regional taxonomies as they become available.
3 High impact sectors are sectors with high GHG emissions in terms of absolute emissions or carbon intensity. The Transition Pathway Initiative defines the following sectors as high impact: airlines, aluminium, autos, cement, chemicals, coal mining, diversified mining, electricity utilities, oil & gas / oil & gas distribution, other industrials, pulp and paper, shipping and steel.
4 Material sectors are high impact sectors, as defined above.
An important part of furthering the conversation with clients around climate change risks and opportunities is transparency and good quality information. Each investment team has prepared a climate change statement describing their approach to incorporating climate-related issues into their strategies.
Carbon footprint reports
The listed equity teams also publish carbon footprint reports which can be accessed from their respective team pages. Below is the combined footprint for all listed equity portfolios.
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First Sentier Investors is an active investment manager with a diverse range of individual and autonomous investment teams who share a commitment to responsible investment.
To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team 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 (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.