ESG Focus Areas
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Escalated Engagement: Accelerating ArcelorMittal's 37 Climate Transition ArcelorMittal, a global steel giant, faces significant challenges in decarbonization and health and safety (H&S). Steel is key to our societies, including the energy transition, but is also one of the most carbon intensive sectors, representing around 9% of global emissions on an annual basis. Our engagement has focused on these critical issues, aiming to drive clarity on the com- pany's transition plan and address potential economic challenges from rising EU carbon prices. In 2023, we escalated our efforts by organizing a joint investor initiative representing $4 trillion in assets. This led to Arcelor - Mittal publishing a climate report for its Indian joint venture, including emissions reduction targets and renewable energy initiatives. We were subsequently invited to co-lead the Climate Action 100+ initiative for ArcelorMittal. Our engagement intensified with a statement at the 2024 AGM, urging clarification of climate ambitions and cost sensitivity analysis. Following a series of fatalities, we collaborated with other investors to press for a comprehensive third-party H&S review across all sites, with results expected in September 2025. Despite ArcelorMittal's recent sustainability update, we remain concerned about the lack of new information supporting their 2035 targets. We've emphasized the urgency of releasing a comprehensive climate report to understand their response to the changing regulatory landscape. We remain committed in driving meaningful progress in Arcelor Mittal's sustainability efforts, particularly in climate action and worker safety and will be exploring avenues for further escalation if it does not materialize.
Voting on Climate We leverage climate votes to influence corporate climate strat- egies, expecting boards to oversee and disclose climate risks due to their potential impact on company value. The Invest- ment Stewardship team, collaborating with Portfolio Managers, evaluates significant climate resolutions, particularly "Say on Climate" initiatives in high-impact sectors. In 2024, a lot of our work revolved around alignment with the Paris Agreement. Our activities here were wide ranging, from shareholder proposals in favour of aligning targets for indirect scope 3 emissions with the Paris Agreement, like we did with Total Energies and Shell 38 , to requesting better reporting on GHG emissions targets with Public Storage and reporting on Corporate Climate Lobbying practices with Toyota Motor Corp. On proposals that require companies to disclose information about its governance, strategy, risk management and targets related to climate risks, we voted in favour. We voted for 19 ”Say on Climate” board proposals and against the proposals in TotalEnergies, Woodside Energy Group and Canadian Pacific Kansas City Limited . In total, we voted on 127 climate-related shareholder proposals where we have supported 70% of them. Policy Support PCAF – Partnership for Carbon Accounting Financials We have been actively involved with the Partnership for Car- bon Accounting Financials (PCAF) since 2020, contributing to sustainable finance advancements. In 2024, our ESG methodol - ogy lead, Kenn Urhøj, joined PCAF's working group on secu- ritized and structured products, aiding in the harmonization of GHG emission measurement approaches. Additionally, our Responsible Investment team has developed a methodology for covered bonds, aligning with the Net Zero Asset Managers Initiative commitment, to be implemented from 2025. We are
also engaging with the Covered Bond Council on industry dis- closures in Europe and will participate in their annual congress.
Covered Bond Engagement Campaign Since 2022, we have engaged with 66 covered bond issuers to improve their reporting disclosures, focusing on environmental metrics such as energy performance certificates (EPC), energy use (in kWh/m 2 ), and greenhouse gas emissions (tCO 2 e/m 2 ). While progress has been limited due to insufficient data avail - ability, we remain committed to continuing these engagements, to ensure issuers understand the need for data and ESG inte- gration in covered bonds. We utilize the information gathered to measure fund sustainability levels and inform ESG assessments for security selection. Outlook As we look ahead to the coming year, we recognize the rapid evolution of the responsible investment landscape, particularly in the realm of climate action. The net zero investor movement has shifted focus from simply reducing financed emissions to actively financing reduced emissions, while also grappling with the realities of limited decarbon- ization in the broader investment universe. Moreover, the growing political complexity surrounding ESG issues pres- ents both challenges and opportunities for asset managers. In this dynamic environment, our firm remains steadfast in its commitment to addressing climate-related risks and opportunities across our portfolios. We continue to view unmitigated climate change as a significant investment risk and remain dedicated to supporting global efforts to limit warming to 1.5°C.
37) Reference to companies or other investments mentioned should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. 38) Reference to companies or other investments mentioned should not be con- strued as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration.
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