PERSPECTIVE3-5 min to read

The value of climate collaboration: our approach to industry initiatives

Andy Howard, Global Head of Sustainable Investment, discusses investment industry initiatives focused on climate change and Schroders' approach to membership of such bodies.

24/04/2024
Photo showing factory smoke and forest

Authors

Andy Howard
Global Head of Sustainable Investment

We have long argued that climate change represents an inevitable and unavoidable challenge and opportunity that will disrupt economies, industries, and investment portfolios. It is a systemic risk that requires – and is receiving – significant attention. Countries representing around 90% of the global economy and companies comprising around half of the value of the MSCI ACWI global benchmark have committed to reaching net zero in coming decades.   

In tandem, the number and membership of investment industry initiatives focused on climate change have grown in recent years, as the issue has moved firmly into the mainstream of the investment agenda.  

Charts showing companies and countries committed to net zero and signatories to industry bodies

In recent weeks, those industry groups have come under renewed scrutiny.  Most recently, several large institutions have left or limited their engagement in Climate Action 100+ (CA100+), an initiative launched in 2017 that had reached 700 members responsible for $68 trillion at the end of 2023 – equal to roughly two-thirds of the asset management industry’s total AUM[1] – according to its website.  

Schroders is a member of CA100+ and we have no plans to exit.  In general, we apply simple principles to our decisions over the initiatives we join:  

  • Our investment views drive the actions we take, including joining and remaining members of industry initiatives. Those initiatives do not determine either our views or actions; we do not sacrifice investment integrity to any external initiative.   
  • We join groups if their objectives and actions are aligned with our fiduciary duty and view of how we can most effectively manage the assets our clients entrust to us, and where we believe membership lawfully enhances our ability to meet our clients’ long-term financial objectives.   
  • If initiatives’ priorities become inconsistent with our goals, we will reconsider our membership. 

We believe strong financial returns and meeting climate commitments go hand-in-hand. Our own climate transition plan[2] plots our firm’s path to aligning our business and the portfolios we manage toward the net zero global economy to which the large majority of the global economy has committed, in our pursuit of maximising long-term value for our clients. 

Our emphasis is on supporting and encouraging transition by the companies and assets we invest in, supported by our firmwide commitment to engagement, and enabling our clients to benefit from the enhanced value that can be unlocked by such activity. We have found that companies able to cut their emissions most quickly have outperformed over the last five years[3], and against a backdrop of increasingly visible physical threats and growing pressure for action, see no reason to expect those drivers to change.   

Our own engagement has proven rewarding[4], but we also believe we can help serve the interests of our clients by considering policy developments, broader societal expectations and physical risks and economic costs associated with climate change through participation in industry initiatives. We will not agree with fellow members on every issue, or on the appropriate steps to take where engagement does not yield the results we hope for, which is inevitable in an organisation as diverse as CA100. We will determine our own actions independently in those cases.   

Similar principles apply to other initiatives of which we are members, while we have declined to join groups which fall short of those requirements.   

[1] Total asset management industry AUM from BCG, 2023 

[2] Schroders Climate Transition Action Plan

[3] Companies which have reduced carbon intensity in the top quintile of their sector over the last five years have outperformed those in the worst quintile of change by c4% pa  

[4]  See Schroders Climate Report, which includes a summary analysis of our engagement experience including the finding that companies we have engaged in the MSCI ACWI IMI index since 2021 have proven twice as likely set new emissions targets, have cut emissions twice as quickly and have outperformed by 4% annually compared to companies in that index we did not engage on climate topics. 

Authors

Andy Howard
Global Head of Sustainable Investment

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