In this article:
The next step in the response to the climate emergency will be the hardest. Turning pledges and commitments into real action requires effort; however, it is essential now that the scale of the problem is better understood, and the solutions made clearer.
We might well wish for a more stable geopolitical and macroeconomic backdrop for what is a substantial task. But we can’t afford to let the urgent distract from the existential and wait for conditions to improve.
With that in mind, and to sharpen our analysis of the progress made by our investee companies, we have enhanced our proprietary sustainability ratings to include assessments of both the financial, and non-financial impacts, of company actions. This is what is known as ‘double materiality’ and it is crucial to compiling a forward-looking view on the sustainability profiles of corporate issuers.
Asset managers have a choice to engage or divest, or a combination of both. As active managers, we have preferred to engage with companies where their transition plans fall short. Getting from brown to green is the priority, not just in portfolios but in aggregate across the world. To that end we are employing a climate rating to identify the companies with whom we should prioritise engagement to meet our net-zero goals.
By working with other investors in this area, through groups such as Climate Action 100+, we can share knowledge and investment policies, engaging directly with management to focus improvements on areas that need it most.
Finally, sustainable investing is as important to private markets as public ones. Private markets give investors access to those smaller-scale firms working on green technology to reshape industries, as well as renewable energy projects.
Sustainability is complex and, like most areas of finance, constantly evolving. It requires us to iterate our own processes to keep pace with change and ensure our investment ambitions remain high.
CEO, Fidelity International