- As climate change related risks are becoming more pronounced, major investment firms have been increasingly pushing companies to address these risks and their role in exacerbating them.
- This year, almost every major public oil company faced at least one shareholder resolution involving climate change, with proposals winning record support.
- While most asset managers prefer engagement to divestment, frustration over fruitless discussion and resolutions has also led to a growing divestment campaign.
- Earlier this year, Legal & General Investment Management (LGIM) reduced its stake in oil giant Exxon by US$300m, using its remaining stake to vote against the reappointment Chairman and Chief Executive Officer Darren Woods.
Analysis and Comments
- The whole debate around divestment vs engagement is a potentially divisive one – not so much among asset managers but in discussions with asset owners and particularly retail investors.
- Over the last few years, it has been interesting to watch the shift in focus, as the engagers have increasingly honed in on the stranded asset risk across a whole range of industries, which has real and tangible implications for value.
- Google announced beginning of the week that it would neutralize carbon emissions from delivering consumer hardware by 2020, and include recycled plastics in each of its products by 2022.
- According to Anna Meegan, the company’s head of sustainability for its devices and services unit, the company’s transport-related carbon emissions per unit fell 40% in 2018 as it increased the use of ships rather than planes in transport.
- Currently three out of nine products for which the company discloses details online contain recycled plastic (ranging from 20-42%) – which trails behind hardware rival Apple’s sustainability efforts.
Analysis and Comments
- The trend may be slow, but for those companies that sell high profile products such as Apple & Google, the pressure to show their green credentials appears to be growing.
- It is not clear how Google will fully “neutralise carbon emissions from delivery” – initially it looks as if at least part of the solution will be via carbon credits (which will gradually become more & more expensive to buy).
- Hence longer term, this increase in carbon crédits price could be providing an incentive for the transport sector to accelerate its own shift to low carbon.
- British spirits maker Diageo is investing £180m into green energy and water recovery solutions such as biomass boilers, solar installations and water recycling systems at 11 of its breweries across Africa.
- The investment is the company’s largest environmental investment in a decade, and will include £50m in upfront capital for solar, water treatment and biomass equipment, as well as £130m in long-term supply and maintenance contracts.
- The company’s ultimate goal is to become 100% green and it plans to half its water usage and GHG emissions by 2020 as part of a group-wide commitment. It is also increasing its focus on sourcing locally in, with 78% of agricultural materials used in its 12 breweries across Africa currently sourced from local farmers.
Analysis and Comments
- Africa contributes c. 13% of Diageo’s global turnover and about half of the company’s beer sales, and a minimum of 20 of the company’s African production facilities are in so-called “water-stressed locations”.
- Unsurprisingly, water is an essential ingredient in all of Diageo’s brands (90%+ of beer and 60% of spirits) and the company has thus far been able to achieve a c.44% improvement in water efficiency between 2009 and 2018.
- According to new data from WRI’s Aqueduct tools, 17 countries (including Africa) – home to one quarter of the world’s population – face extremely high levels of baseline water stress, as water withdrawals globally have more than doubled since the 1960s.
- Of the 17 most water-stressed countries,12 are in the Middle East and North Africa (MENA), where growing demand and climate change are pushing already constrained countries even further into extreme stress.
- According to the World Bank, this region has the greatest expected economic losses from climate-related water scarcity (c. 6-14% of GDP by 2050), stressing the importance of pursuing SDG 6 – ensuring the availability and sustainable management of water and sanitation for all.