As the year begins in earnest and the annual reporting season looms, we’ve been assessing our priorities for the coming months when it comes to engaging with our portfolio companies and on behalf of our reo® clients.
At Columbia Threadneedle Investments, we are determined to continue to engage constructively with businesses with the aim of achieving positive results, particularly on issues of sustainability. We’ve been doing so for more than two decades.
The prevalence of extreme weather events, including forest fires and flash floods, over the past year – combined with the ongoing disruptions caused by the pandemic – have made us even more convinced of the need to act in the interests of the planet and its future.
Central focus
With this, and our continued belief in active ownership, in mind, we’ve now fine-tuned our approach for the year ahead. Our central focus in our engagement with companies will be the key environmental issues of combating climate change and protecting biodiversity.
We will also continue to engage in the area of executive pay, specifically around the incorporation of environmental, social and governance (ESG) risk metrics, and we will impress on companies the importance of their human rights obligations.
One of our main priorities this year will be to hold companies to account for the previous commitments they have made in areas such as net-zero pledges and strategies for decarbonising.
Climate change and biodiversity
Our engagement on climate change will focus on the planned phasing out of ‘unabated’ coal generation, whose emissions are not mitigated by carbon capture and storage technologies. This is due in the developed world by 2030, and by 2050 in developing markets, in line with the Paris Agreement. While our engagement will be in all sectors, we will concentrate on mining and utilities, identifying laggard countries as well as companies. We will take forward our ongoing work with the Climate Action 100+ coalition and on energy efficiency in the Real Estate sector.
On biodiversity, we will step up our engagement in the most critical sectors, including food and drinks, ‘extractives’ such as mining and quarrying, materials, transport and finance. We will be looking for strategies, targets and metrics for mitigating biodiversity risks.
Spotlight on chemicals
We will encourage chemical companies to make the sustainable transition to clean energy and lower environmental impact, including by cutting greenhouse gas emissions, reducing plastic waste and investing in recycling technologies. The materials and chemicals industries will also be a key focus for us because of their propensity to operate and manage supply chains in areas that are vulnerable to extreme weather events.
ESG in executive pay
Executive remuneration needs to be linked to success in climate-related strategies and initiatives, and we will push for this in every industry, including oil and gas, electric utilities, the automotive sector and financial institutions.
We expect executive incentives to be aligned with the interests of long-term shareholders. And we will advocate for the introduction of risk-related preconditions to bonus awards to ensure that climate-related payments are not made inappropriately when there are still concerns in other areas such as financial strength or credit quality.
Human rights and supply chains
We will engage with companies about implementing human rights protection, and checks, across their supply chains. We see this as part of good practice in supply chain management.
Our team will also work to ensure the quality of social audits in checking that suppliers comply with their human rights obligations. In particular, we will engage with companies in the clothing, retail and services sectors to ensure they do not fall short with their obligations on human rights and labour standards.
We will also continue our work on the rights of Indigenous peoples in the extractives and renewables sectors.
At BMO GAM (EMEA), we have a 25-strong responsible investment team, which last year engaged with 940 companies in 49 separate geographies. In the same period, we achieved 388 ‘milestones’ or positive outcomes as a result of direct engagement over time.
