In 2015, 195 countries came together to agree that, through supporting the Paris Agreement, global warming should be limited to well below 2oC. This unanimous international agreement occurred because these nations agreed that the risks of allowing climate change to occur are too systemic and irreversible to ignore.

At Newton, we believe an active investment approach plays a crucial role in identifying the future risks and opportunities of climate change for investors. As a result, climate change is one of our key engagement themes for 2018.

We have been working on climate change for many years through proxy voting, corporate engagement, collaborating with other investors and disclosing our thinking and actions. In cases where we believe companies are ineffectively managing their climate-related risks or opportunities, we engage to seek further information and more comprehensive action. One recent example provides a good case study of collaborating with other investors to create a wide-reaching, global impact.

Maintaining pressure on the oil & gas industry

In the run up to their 2018 AGMs, we wanted to strongly encourage oil companies to take full responsibility for their emissions and to improve the transparency of reporting in this area. As members of the Institutional Investors Group on Climate Change (IIGCC), we have been supporting the Climate 100+ campaign to target the 100 most significant contributors to climate change. Our investment strategies (combined) hold fewer than ten of these names, and while we engage with these businesses individually, we wanted to make a bigger impact. To do this, we harnessed our industry contacts to garner support for a public letter. We believe that this collaboration was an effective way to maintain pressure on the industry, and that it bolsters the overall campaign for greater climate-change awareness. To support these aims, I worked alongside my counterparts at Legal & General Investment Management to rally other investors.

The outcome of this work was a letter, supported by 60 asset managers and owners with combined assets of over $10.5 trillion. The letter gained excellent traction in the global press, being first published by the Financial Times and then by other media outlets like the Wall Street Journal, Bloomberg and Reuters. Crucially, we were particularly pleased to hear from Christiana Figueres, chair of the Paris COP21 negotiations and former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), that the letter was discussed by the CEOs of large oil companies.

Quantifying effective engagement

Last week, we hosted an event at the annual Governance Week in New York. Governance Week brings together a number of leading governance, sustainability and responsible investor entities to focus on ESG issues. Our session, at which Christiana Figueres was joined by Dr Xi Li from the London School of Economics and Political Science, explored recent research from a group of leading academics based in the UK on what makes for successful investor engagement. It also looked at what the future holds for investors amid climate-change governance risks. The event aimed to provide a forum for investors to learn from each other’s experiences and move the discussion forwards on how to tackle climate change, a key issue from both a social and investment perspective.

Following Mark Carney’s ‘tragedy of the horizon’ speech in 2015 and the subsequent publication of the Task Force for Climate-related Financial Disclosures (TCFD) recommendations, which provides a framework for climate-change disclosure, we will also be exploring how we can better report our thinking and actions on the issue of climate change. Climate change is and will continue to be a key area of focus for us.

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