Nest and UBS Asset Management call time on unresponsive energy companies

The pensions scheme Nest and UBS Asset Management (UBS AM) have sent a clear signal they expect companies to engage with shareholders around climate change, particularly energy companies which have an important role in the transition to the low carbon economy.

Due to lack of progress in managing climate change risk, UBS AM removed (divested) its holdings in five energy companies: Exxon Mobil, Imperial Oil, Kepco, Marathon Oil and Power Assets.

UBS AM has applied these exclusions across its suite of Climate Aware funds, including the one it manages for Nest, and its actively managed equity and fixed income sustainability funds.

UBS AM’s decision follows a 3-year engagement program it led as part of its Climate Aware framework, with 49 oil and gas companies identified as lagging on climate change performance. 60% of companies made good or excellent progress during this time in transitioning their business towards a lower carbon economy.

Nest’s share ownership in these five companies, through its Climate Aware fund, represented £40m as of June end 2021. The five companies will not return to Nest’s main portfolio until they demonstrate clear progress in preparing for the low carbon economy, in order to deliver good investment value for its savers.

Oil and gas companies represent a significant proportion of the world’s greenhouse gas emissions and can equally provide capital and technologies to solve it. Nest, which currently represents a third of the UK workforce, has made clear it will not support companies its membership owns that don’t proactively manage their exposure to climate risk, or do not engage with shareholders over its concerns.

Discussing the new announcement Katharina Lindmeier, Senior Responsible Investment Manager at Nest, highlighted the need for immediate action in managing climate risk in its investments.

“COP26 showed the need for immediate action. The prospect of a 2.4C global temperature rise will cause dramatic changes to our ways of life and businesses need to be preparing now to remain profitable and successful.

“At Nest we aim to work with companies to encourage sustainable business decisions but will draw the line somewhere. The five companies being excluded have not done enough to convince us that we should remain shareholders.

“The new short-term climate target we’re announcing today should demonstrate not only our commitment on becoming net zero, but also that we’re not hanging around. We want to be on the front foot for such an important issue like climate change to achieve better risk-adjusted returns for our members.”

Francis Condon, Head of Thematic Engagement and Collaboration at UBS Asset Management commented,

“We view engagement as fundamental to any sustainable investing approach. Through engagement, investors can be a force for good in influencing corporate behaviour and accelerating action in those sectors where it is most needed. Our three-year engagement programme provided companies with time to understand our concerns and act on them. We have seen positive progress from most companies in the program on their climate strategy and transition to a lower carbon economy. However, where we have not seen tangible progress, we are taking action.”

To reinforce its commitment to net zero by 2050 (or sooner), Nest is introducing a new carbon reduction target to help maintain momentum and progress – a commitment to reduce carbon emissions by 30% in public equities and fixed income by 2025. The 30% reduction is baselined against Nest’s 2019 portfolio.

UBS AM has also extended its climate engagement program, underpinned by the same Climate Aware Framework, to cover other sectors where climate change risks and opportunities are material. This includes 46 companies in the following industries: automobiles, chemicals, construction and materials, electricity, industrials, utilities, metals and mining, and oil and gas producers.

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