Major oil companies and banks must make greater progress on climate pledges or risk losing the support of Border to Coast Pensions Partnership this AGM season, the pool has warned.
The pool, which is responsible for £38.3bn of investments on behalf of 11 Local Government Pension Schemes (LGPS) funds, has strengthened its expectations of the oil and gas and banking sectors to ensure they align with a low carbon economy and support global net zero ambitions.
The pool said it will vote against the chair of the board of oil companies which fails to meet one of the first four indicators of the Climate Action 100+ benchmark, which includes short, medium and long-term emission reduction targets.
It will also vote against oil companies scored 3 or lower by the Transition Pathway Initiative (TPI) – meaning effectively they have not yet developed a strategic understanding of climate risks and opportunities or integrated this into business strategy and capital expenditure decisions.
Of the 57 major oil and gas producers, nearly half, 53 companies, more than 90% are currently rated level 3 or level 4 by TPI. This includes energy gianst such as Exxon Mobil, Shell and BP. Only 4 companies are rated level 1 or 2.
As an open DB scheme, Border to Coast has a significant allocation to equities and offers its partner funds among others a selection of two UK equity funds, an overseas developed market equity fund and an emerging market equity fund.
According to its latest TCFD report, companies owning fossil fuels accounted for 15% of its UK equity fund, 16% of its UK listed equity Alpha fund, 8% of its developed markets equity fund and 11% of its emerging markets fund.
Alongside voting, Border to Coast will engage with oil and gas companies on their decarbonisation strategy and capital alignment with net zero goals and will raise concerns regarding the development of new fossil fuel reserves, which are incompatible with limiting global warming to 1.5C.
It will also vote against banks where the company has materially failed the first four indicators of the TPI framework for the sector.
This includes banks that have not sufficiently integrated targets, decarbonisation strategy, or climate policy engagement into business strategy.
Jane Firth, head of responsible investment at Border to Coast, said: “Oil and gas companies are amongst the highest carbon emitters in our portfolios and must do more to address the systemic risk climate change poses.
“As a responsible investor representing asset owners with £60bn of investments, we will continue to leverage the strength of our collective voice to influence companies, via both voting and engagement, to drive greater progress.”
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