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In 2021, we continued our active ownership approach, engaging with investee companies to gain a deeper understanding of their approach to ESG and to use our influence to improve their sustainability practices. The report details the number and type of engagements carried out during the year, including more in-person interactions as Covid restrictions were lifted.
We updated two key areas of our Voting Principles and Guidelines that relate to board diversity and climate change. In the case of board gender diversity, we will consider voting against the election of directors where boards do not have at least 30 per cent female representation at companies in the most developed markets (including the UK, the EU and Australia) and 15 per cent female representation in other markets. This policy aims to improve gender balance at the board level, but also catalyses broader discussions beyond gender diversity and the board.
Our policy also encourages improvement on climate change strategy, governance, and disclosures, providing a clear set of criteria that we believe companies should be achieving to effectively address climate risks and opportunities. Moreover, the updates introduce a shift in how we approach shareholder proposals, taking a more holistic view of factors when determining our final decision.
Three themes for 2021
As well as adapting our Voting Principles and Guidelines last year, we identified three key themes to guide the nature of our engagements: climate and natural capital, employee welfare and digital ethics. These themes recognised the serious financial risks posed by climate change, as well as the importance of social issues in sustainability considerations, which have become even more prominent following the pandemic and the evolution of the digital economy.
These themes provided the basis for much of our engagement activity last year. For instance, we continued our work as a Climate Action 100+ signatory in the collaborative engagement with Sasol, South Africa’s largest integrated energy and chemicals company. Sasol is one of the highest emitters in Africa, but we were pleased to see it has made significant progress in developing and implementing its climate strategy, notably releasing its 2030 and 2050 decarbonisation roadmaps in 2021.
Likewise, the focus on employee welfare was a guiding principle in our ongoing work with IAST (Investors Against Slavery and Trafficking). Fidelity was a founding member of IAST in late 2020, and through 2021 we began our modern slavery engagements. One of these included working with a palm oil company as part of a collaborative initiative.
Three new themes for 2022
Building on the progress made in 2021 in our core engagement areas and following the outcomes of COP26, we identified three themes for 2022.
The first is deforestation. Our focus here has been prompted by the essential role forests play in mitigating climate change and biodiversity preservation. Ten million hectares of existing forest cover are still lost each year. Unabated loss of our forests will undermine the ecosystem services on which over 50 per cent of global gross domestic product (GDP) is moderately or highly dependent (according to the World Economic Forum), and it is inconsistent with our commitments to achieve net zero.
Second is a focus on the “Just Transition”. This means ensuring that the race to decarbonise is not done in such a way that it harms those whose livelihoods are dependent on fossil fuels or carbon intensive industries. We push companies to consider how their environmental policies do not also leave a damaging social mark.
Finally, a key concept for Fidelity is the principle of “double materiality” which recognises that companies are not only responsible for managing the financial risk to their business of environmental and social factors but that they are also responsible for the actual impact that their business has on people and the planet. Double materiality is a key tenet of Fidelity’s latest version of our proprietary sustainability ratings, which have been updated to take a more holistic view of an issuer’s ESG risks and opportunities.
For more information about our engagement activity and core themes, please view the Active Ownership section of the Sustainable Investing Report 2022 here.