IN FOCUS6-8 min read

Q&A: How we’re influencing companies over climate change

Addressing climate change makes good business sense, which is why our engagement with companies we invest in matters.

03/03/2023
Worker in hi viz vest

Authors

Carol Storey
Climate Engagement Lead

Carol Storey, Climate Engagement Lead in Schroders’ Active Ownership team, works with investors and analysts covering a range of sectors and geographies on their climate engagement approach. Whether she and her team are guiding on strategy and offering insights or engaging directly on behalf of or alongside fund managers, it is about promoting the long-term success of investments.

In this Q&A she explains a bit about her role, company climate transition plans, why they matter to investors and how they can drive change.

Why engage on climate transition plans?

“How a company responds to the challenges and opportunities related to climate change is key to its bottom line – and that’s why it matters to us. It’s a question of returns. Along with real world emission reductions, a smart strategy could mean a more resilient business, new areas of growth, and perhaps bigger profits. A poor plan could bring future problems, and poorer returns. This is why we engage companies, to sit across the table (or computer screen) and speak to them.”

What are you trying to find out in fact-finding engagements and from transition plans?

“We want to learn as much as possible about their climate strategy. And we want to scrutinise their climate transitions plans – their blueprints for how they intend to meet the challenges their business faces today and may tomorrow. When we look at transition plans we want to get a grasp on the who, what, where, when, how and why. We use this information to help us identify companies that could be well placed to outperform in a net zero world, and those that may falter unless they change course.

“It comes down to the following:

  • Ambition – speed and scale of emission reduction targets and other climate goals, and target alignment with good practice for the sector;
  • Organisation – governance and decision-making processes in place to support climate goals;
  • Action – steps being taken to meet climate goals, and why this course of action is being taken;
  • Progress and performance – emission reductions so far and expected impact of climate strategy, on the planet, on people and on financials;
  • Risks and uncertainties – anything that could lead to a company missing its targets, challenges that must be overcome, risks that are known and those that are not yet fully understood.”

What are the key elements of a climate transition action plan?

“They are a statement of net zero ambition, including scopes and timeframes, details of emission reduction targets and other climate goals, a decarbonisation strategy, financial planning and capital alignment, scenario analysis, Just Transition considerations, value chain engagement, climate policies and lobbying activities, governance, risks and opportunities, and scope 1, 2, and 3 emissions validation.”

What other sources of information do you go to?

“We use a range of sources to assess transition plans, including company disclosures, our own climate models and information provided by organisations like Climate Action 100+, Transition Pathway Initiative, CDP and Science-Based Targets initiative. Not-for-profit organisation CDP grades company responses to its annual survey on climate issues. Last year its survey found one third of companies reported they had a transition plan. However just 1% met CDP’s criteria for a ‘credible’ plan.”

What have you learnt so far?

“We’ve learnt a lot from our conversations with companies in 2022 – for example, how regulation in different parts of the world can help, or hinder, cement businesses from producing lower-carbon concrete. We’ve identified areas of good practice – for example, a metals and mining company that had put in place Just Transition plans to support its workforce if unable to decarbonise the highest emitting parts of its business.”

How are you driving change?

“We’ve seen companies caught out by not providing enough detail in their transition plans during AGM season – for example a financial company that was heading in the right direction but had not yet set interim targets for the majority of the portfolios it managed.

“We’re helping companies strengthen their climate targets and transition plans – for example, by providing detailed feedback to European banks following an extensive research and benchmarking exercise.”

Authors

Carol Storey
Climate Engagement Lead

Topics

Follow us

Please note past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This marketing material is for professional clients only. This site is not suitable for retail clients.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF (No.24546). Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).