In focus - Fixed Income

Turning up the heat: are investors making up for lack of public leadership?

With governments failing to display sufficient climate leadership during the G20 summit in Japan, active ownership is on the rise.

07/18/2019

Marc Hassler

Marc Hassler

Sustainable Investment Analyst

Amidst the trade war and tariff talks, the recent G20 summit in Osaka also caused a stir among climate change investors.

Prior to the event, Japan changed its draft communiqué – the proposed agreement to be signed by the leaders of the G20 nations – to exclude the phrases “climate change” and “decarbonisation”, seemingly giving in to US pressure during trade negotiations.

Ultimately, the final version of the agreement accounted for the importance of addressing the climate crisis, but as with previous years, the US rejected signing the climate section. All other 19 nations supported the passage.

Japan heading in the wrong direction?

Since the nuclear disaster at Fukushima Daiichi in 2011, Japan has considerably increased its CO2 emissions from electricity generation.

This is mainly due to the reduction in electricity generation from nuclear energy, which currently accounts for ~2% of the total electricity generated in Japan.

The nuclear gap has mainly been filled by fossil fuels, particularly coal and gas. They currently account for ~75% of Japan's electricity generation.

Renewable energy production has increased slightly, but still accounts for just 15% of electricity. On this front, Japan is near the bottom of the table when compared to other developed nations.

On the back of the nuclear catastrophe, shareholder resolutions in Japan demanding the abandonment of nuclear energy and increasing the renewable capacity have been higher than in any other country.

Shareholder resolutions are proposals submitted by shareholders for a vote at a company’s annual general meeting (AGM). Generally, the proposals are submitted when the company has failed to meet shareholder expectations.

However, it’s not just in Japan where this is happening. Shareholder resolutions targeting climate-related and environmental topics have been on the rise globally. Approval rates of these types of resolutions have been rising too, indicating that increasing pressure from active share holders is changing the way companies operate (Figure 1).

Environmental shareholder resolutions

Investor engagement

Source: Proxyinsight.com

The G20 summit’s failure to display the level of global leadership required to address the climate crisis increases the importance of the role played by investors and active owners.

With the G20’s “19+1” (with the 1 being the US) climate position on the verge of turning into an “18+2” constellation as Japan also becomes an outlier, the onus to act has been further pushed onto investors and consumers.

As active owners we support voting and engaging with companies to address climate change-related risks. This enables companies to realise the opportunities it brings, rather than leaving the potential liabilities unaddressed.

Schroders is actively engaged with Climate Action 100+, an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. The companies include 100 “systemically important emitters”, accounting for two-thirds of annual global industrial emissions, alongside more than 60 others with significant opportunity to drive the clean energy transition.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.