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Climate Risk

We utilize active ownership strategies to encourage companies to aggressively pursue a path toward a carbon-neutral future.

The Issue

The changing climate is the world’s foremost environmental challenge with far-reaching economic, environmental, and social implications that create risks and opportunities for companies and investors. For example, changes in precipitation patterns disrupt agricultural systems, causing or exacerbating food insecurity. Rising sea levels imperil coastal infrastructure and populations. Both could force migration and precipitate or amplify conflicts. As fiduciaries, we aim to manage the associated risks and opportunities. As concerned investors, we seek to contribute to efforts of citizens, businesses, and governments around the globe to catalyze and expedite the transition to a low carbon future and lessen the harmful impacts on the environment and humankind. These goals are compatible and complementary.

Our Engagement Strategy (2020)

As investors who hold shares of publicly traded companies, we believe we have a unique ability to influence corporate leadership to embrace its role as a significant part of the solution to the climate crisis. We encourage companies to aggressively pursue a path toward a carbon-neutral future by asking them to:

  • Set greenhouse gas (GHG) emissions reduction targets based on widely accepted scientific research. Specifically, we ask companies to set “science-based targets” (SBTs) aligned with the Paris Climate Agreement, which aims to limit the increase in the global average temperature to below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels. In 2018, the Intergovernmental Panel on Climate Change reinforced that global temperature rise must not exceed 1.5°C if the world is to avoid catastrophic impacts of climate. To achieve this goal, emissions must halve by 2030, and decrease to net zero by 2050.
  • Advocate for and support effective climate policy with lawmakers at the local, state, national, and international levels. Many corporations are members of lobbying groups and trade associations that have hindered progress on climate change. We believe a vocal corporate constituency in support of effective climate policy is crucial for continued progress.

The two threads of our climate engagement strategy are interrelated and self-reinforcing. As companies set science-based targets, they are signaling to lawmakers that addressing climate change makes good business sense, enabling legislators and regulators to develop sound public policy solutions to mitigate climate change. With a rational and effective public policy framework in place, companies are better able to achieve climate-related goals.

Key Considerations

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We consider several indicators of corporate performance related to climate that inform our engagement, including GHG reduction initiatives, energy efficiency and natural resource conservation, commitment to renewable fuel sources, and public policy positions.

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Solutions to climate change must consider the supply and demand for energy. Thus we engage both energy suppliers (i.e. fossil fuel companies and utilities) and corporate users.

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Climate change affects different sectors and industries in distinct ways. The Sustainability Accounting Standard Board (SASB) describes climate risk as “ubiquitous but differentiated.” While companies face unique discrete risks associated with climate change, we believe all companies have an opportunity to help reduce emissions.

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Company-specific action to mitigate climate change can be cost-effective, as demonstrated by the return on investment companies receive from energy efficiency projects and the competitive price companies are now paying for renewable energy.