Eastspring Investments: Responsible Investment Report 2022
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Short-term climate target
Metric rationale
2022 status update
A target to engage with the companies responsible for 65% of the absolute emissions in our investment portfolio
We aim to support a just and inclusive transition to a low-carbon economy through our engagement target, based on a belief that active ownership is preferable to exclusions in securing a just transition. Engagement with investee companies is core to our active ownership responsibilities. We aim to encourage business and management practices that support positive enhancement of material ESG traits or mitigation of material ESG risks across our holdings through constructive engagement based on our in-depth knowledge of our investments in the context of their business environment.
We completed the first year of our Climate Change and Decarbonisation thematic engagement. This is helmed by the Sustainability team under its Central Engagement Programme. Leveraging on insights gleaned from our pilot year, we refreshed the engagement programme in June 2022. This year’s programme includes 108 companies, including new names in addition to retaining all engaged companies from 2021. Engagement is underway and will continue into 2023. For more information on the Central Engagement Programme, please refer to page 31.
Short-term climate target
Metric rationale
2022 status update
Divestment from all direct investments in businesses which derive more than 30% of their revenue from coal, with equities to be fully divested by the end of 2021 and fixed income assets by the end of 2022
We believe our coal policy supports a just and inclusive transition in the markets where we operate and demonstrates how we strike a balance between active ownership and exiting investments when ESG risks are insurmountable or where continued engagement is considered ineffective. In our preliminary assessment, we considered different thresholds against whether it supported a just and inclusive transition and whether it fit the requirements on risk and return. Whilst we consider companies that are highly dependent on coal as a stranded asset risk, we also recognise the challenges faced by our LBUs in emerging markets, which invest in underdeveloped capital markets. Ultimately, the threshold for our coal policy was set to balance the risk and return, whilst also allowing companies in those markets to phase out of coal in an inclusive manner.
We divested 97% of directly held fixed income assets that derive 30% of the revenues from coal. This is held against a 31 March 2021 baseline, which was the date used for Prudential’s May 2021 commitment. Due to illiquidity in the market, we were unable to fully divest from one remaining holding of USD 12.1 million. We view this illiquidity as an illustration of the degree of challenge a divestment strategy poses in the markets in which we operate and supports our broader philosophy of engagement over divestment in pursuit of a just and inclusive transition. We continue to seek opportunities to sell the remaining fixed income assets and intend to do so as soon as practicable. In parallel, we will continue to engage with the issuer on other options for us to divest from this holding as we believe we have set our coal policy in a just and inclusive manner. Since 31 December 2022, we have further divested from this coal bond.
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