«Engaged» in (fossil fuel) divestment

Neville White is Head of Sri Policy and Research at EdenTree, a London based investment management firm “with a strong heritage of delivering profit with principles”, as its Twitter account says. It has a structured social media presence, in fact we catched up on Twitter.

On EdenTree’s website you can find an Sri Expert Briefing that outlines the company’s view on the fossilfuel divestment movement, a topic mondosri is extremely keen on. Questioned by mondosri around that, Mr. Neville kindly answered as follows.
(Embedded links are editor’s note).

mondosri: Is it correct to say that there’s already demand for fossil-free investments products in the UK? If yes, is it coming more from retail or from institutional investors, or from both? In general, what do investors concerned about climate change want or, at least, ask for?

N.W.: In the UK institutional faith investors, and some local authority pension funds have been the key drivers for responding to climate change by developing polices that divest from the high-impact areas such as thermal coal and oil sands. There has been considerable debate around fossil fuel divestment but only a few institutions have moved to complete divestment that includes coal, oil, gas and power generation from thermal coal. Our range of screened retail Funds apply a negative and positive screen. Whilst we do not have a climate change negative screen, we exclude mining and most oil under the positive screen as not meeting our environmental, human rights and labour standards  requirements. As a House we have also a nil oil sands and Arctic drilling policy. As a result our own Funds have a relatively low climate change impact and are relatively stranded asset averse.

mondosri: In what way could the fossil fuel divestment movement and its main message (“If it’s wrong to wreck the planet, it’s wrong to profit from that wreckage”) affect the next AGM season in the UK? Are any shareholder resolutions being arranged/filed on this issue?

N.W.: The ‘Aiming for A’ coalition of UK faith and institutional investors uses shareholder resolutions to build consensus around climate change portfolio resilience. In 2015 shareholder resolutions were passed by 98% at BP and Shell. Similar approaches were replicated in Norway at Statoil. In 2016 the coalition will mount similar resolutions at the Anglo American, Rio Tinto and Glencore AGMs. The coalition strives to obtain Board support for the resolutions which are about disclosure and scenario planning for portfolio climate resilience. There are no other shareholder resolutions planned to our knowledge.

mondosri: Your company is deeply engaged with listed companies on a number of ESG issues. In your experience, when it’s enough with engagement? I mean: if engagement efforts have been fundamentally ignored, or have not achieved most goals over the years, or there’s no way “to make unsustainable businesses sustainable”, what can a responsible, sustainable, conscious, ethical investor do?

N.W.: Our screening process eliminates companies that fail under our negative screen (no alcohol, gambling, pornography, tobacco, arms, animal testing and intensive farming) and passes our nine positive screens. We look for long-term sustainable businesses that have a successful business proposition for investors whilst demonstrating they are managing key ESG risks well. We use engagement as a tool to understand the business, seek ESG information that is not disclosed and which we feel may be material and in the longer term to raise business standards. Investment only goes ahead when we are comfortable the company fully meets all of our risk screens and is an acceptable holding in the screened Funds. Divestment is an option if the company changes appreciably (i.e. develops business interests in excluded categories), or has several scandals which suggest systemic corporate risk that makes the company high risk and high impact.

Many thanks, Neville.

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