My favourite quote from one of the best primers on climate change is this:
“Climate change will have a bigger impact on your family and friends and all of humanity than the Internet has had. Imagine if you knew a quarter-century ago how information technology and the Internet were going to revolutionize so many aspects of life. Imagine how valuable that knowledge would have been to you and your family.” Joseph Romm. Climate Change (What Everyone Needs To Know).
This year, Jupiter’s Environment, Social and Governance (ESG) focus for fixed income will be on engagement with issuers. We will particularly try to raise the actions and intent of every company we speak to and invest in within our Article 8 funds under the Sustainable Finance Disclosure Regulation.
We had some fruitful engagements last year. We urged Barclays to do more to divest from the heavy emitters in their loan book and also asked them to refocus on their women in senior management targets (which they had missed).
We also talked to Organon, a specialist in women’s heath, about their donation of contraceptive implants to help prevent an estimated 40 million unintended pregnancies in some of the lowest income countries in the world.
Our intention in these meetings is to really understand the companies’ business models and help explain to them what best in class can and does look like.
The UK government’s independent review of Net Zero was published in early January. In it, Chris Skidmore MP wrote: “Net zero is the economic opportunity of the 21st century. The evidence presented to the review has shown that the pace of recent change has created a global rush of economic opportunity perhaps never seen before. From the $370 billion support for clean energy agreed by the United States Senate, to the European Green Deal’s €600 billion green investment – the world is responding to this opportunity.”
It is even getting to the point where presidents are complaining to each other about the relative successes of other country’s subsidies packages taking investment away from their own regions: Trade war averted? Macron gets Biden to ‘tweak’ his industrial subsidies – POLITICO.
Understanding how climate change will impact your business means that you can at the very least save money and in many cases take market share and increase your competitive edge. Task Force on Climate-Related Financial Disclosures (TCFD) reports are very useful as companies model their forecasted losses in three different climate change scenarios.
Recently we wrote to Swiss Re about some of their modelled forecasts. In the runaway climate change scenario, Swiss Re computed the potential effects caused by climate change on the annual expected loss for the two most material weather-related exposures in Swiss Re’s property book, i.e., tropical cyclones in the US and in Japan. They found that annual expected losses for their US business increase by close to 90% and 60% for Japan by 2050. Elsewhere they write “insurability depends on the random nature of a risk. If risks increase to a level at which losses are certain and predictable, then insurance is not the right instrument to address such systematic changes to a landscape.”
Just imagine how things might change!
One of the disappointments we faced during our engagements last year related to gender pay gap. While in the UK such disclosures are mandated by law, we found that many companies elsewhere are unwilling to reveal the figures. It is our hope as more of our own competitors ask for data from investee companies, as we have, that companies realise they can no longer bury their heads in the sand on important metrics like this. Research from BAML suggests that companies with greater gender diversity at the board / management level typically see higher return on equities (ROE) and lower earnings risk than peers. ROE has been higher for companies with over 25% female executives (compared to the rest of the S&P 500) in eight of the past 10 years. BofA – ESG Matters – US (baml.com). But there are green shoots of progress in this important area and it is something that we will be writing more on in the coming weeks.
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Why should companies care about diversity…and why we do
Inching closer towards rate cuts
Webcast: Prospects for fixed income as growth slows
Notes from the Investment Floor: Don’t believe in immaculate tightening
The value of active minds: independent thinking