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February 2022 | Issue 242
Opinion ESG
Boardrooms are being hustled by activist shareholders using ESG data to drive economic value
Boardrooms are being hustled by activist shareholders using ESG data to drive economic value
Fatima Hadj
Chairwoman, structured finance advisory board
Principles for Responsible Investment
Pledges have been made and the Race to Zero has begun. Firms need to put their plans in place
More than a year ago, the UN-backed Race to Zero campaign was the subject of my first column. The roadmap to net zero carbon emissions is much clearer today. Back then the objective was to increase climate-change awareness and to encourage fund managers to build a transformational framework, which would help them transition their business models.
The campaign encompasses all types of financing, from private equity to public bonds. But investors face several challenges. They have to set up their strategy, take into account new regulation and pay attention to the sword of Damocles held by activist shareholders.
Entering the next phase of the race
Since the launch of the Race to Zero campaign in June 2020, the world’s largest investors committed to the four Ps: pledge, plan, proceed and publish. 2021 was the year of pledges. CEOs committed to reach net zero greenhouse gases as soon as possible, and by mid-century at the latest. Within 12 months of joining, they must explain what actions will be taken toward achieving both interim and longer-term pledges. Most members have submitted or are about to submit their plans.
However, regulation is becoming increasingly important. Detailed and costed transition plans on climate change must take account of the continued acceleration in climate policy to 2025. In mid-July 2021, the European Commission published its ‘Fit for 55’ package and roadmap, and declared its ambition to make Europe the first climate-neutral continent in the world.
In parallel, another revolution is happening at the highest levels of industry and finance. The sleepy world of the boardroom is being hustled by the emergence of a new type of activist shareholder using ESG data to drive economic value.
In May 2021, a newly created activist fund called Engine No 1 won a historic proxy battle. It installed several directors on the board of Exxon with the goal of pushing the energy giant to reduce its carbon footprint.
How did an activist shareholder manage to have the support of the biggest institutional investors, such as BlackRock, Vanguard and State Street, who usually do not side with activists?
It’s a virtuous circle. Because a company’s performance on environmental, social and governance (ESG) considerations increasingly affects its value, the biggest investors have committed to decarbonise their portfolios.
Tackling all three ESG elements
Climate change is a multi-dimensional objective, encompassing the three ESG components. When building a climate-change framework, social and governance factors should not be overlooked in favour of carbon footprint and clean energy.
The objective of Race to Zero is to rally members for a healthy, resilient, zero carbon recovery that prevents future threats, creates decent jobs and unlocks inclusive, sustainable growth.
Aligned with this, in November, the UN secretary general issued a new global roadmap to secure clean energy access for all by 2030 and net zero emissions by 2050. In this roadmap, renewable energy and energy efficiency are a means to achieve a bigger goal, ensuring an inclusive, green recovery by investing in poverty reduction, health, education and social protection.
The new European growth model reminds us that, behind the ESG criteria, the objective is to enable a permanent balance between climate ambition and social justice, while preserving economic competitiveness.
Principles for Responsible Investments is a UN-linked campaigning organisation committed to keeping market participants posted on the key milestones, industry actions and ESG tools that can help transition portfolios to net zero carbon.
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Global credit funds & CLO's
February 2022 | Issue 242
Published in London & New York.
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