Climate Net Zero Engagement
A growing number of institutional investors are adopting a “net-zero by 2050 approach” to assess the alignment of their invested companies with the Paris Agreement objectives. Recognising the intricacy and duration of this process, Engagement International is actively engaging with companies within their portfolios that face significant climate-related risks and opportunities and are demonstrating inadequate climate management practices. The primary goal is to motivate these portfolio companies to enhance their climate management efforts and decrease their greenhouse gas emissions in accordance with a net-zero trajectory.
Engagement themes
Climate Top100 Engagement
Since 2016, we have engaged bi-annually with the Climate Top100 companies identified in our investor clients’ portfolios. These are listed companies that are contributing the most to climate change in terms of potential emissions from fossil fuel reserves and current scope 1 and 2 emissions.
The engagement’s goal is to encourage companies to reduce carbon emissions in line with the Net Zero goal of the Paris Agreement. It involves milestones such as a clear Net Zero commitment, Science Based GHG reduction targets, emission disclosures etc.
As recommended by the Science Based Target Initiative and IIGCC-led Net Zero Investment Framework, our engagement is closely linked to 3–10 climate milestones, depending on the transition stage of the individual engaged company.
Engagement with Climate Top1000+ Laggards
More than 80% of the total scope 1, 2 and 3 emissions from all 9,000+ companies in the MSCI ACWI IMI universe comes from just about 10% or 1000+ of the companies, typically concentrated in 10 high-impact industries.
About 330 of these very climate risk-exposed companies are laggards when it comes to their management of the most basic climate milestones in the Net Zero Framework. Hence, they are obvious engagement potentials with the engagement goal of improving their level of management regarding these and other milestones.
Engagement with Top Investor-Financed Emitters
According to IIGCC Net Zero Investment Framework, signatory investors are supposed to engage with portfolio companies that together contribute to at least 70% of the total emissions from all portfolio companies operating in 10 high-impact industries.
Supporting our clients in meeting this requirement, Engagement International can identify portfolio companies with the highest investor-financed emissions, calculated as the GHG intensity per invested million USD (EVIC) multiplied by the actual investment in the individual company. Step two is to rank the portfolio companies according to the financed emissions and identify the top emitter portfolio companies that in total contribute to at least 70% of the emissions.
Many institutional investors already engage with some of these companies directly, through their investment managers or via climate networks, such as Climate Action 100+. Engagement International can supplement these efforts by conducting net zero engagements with investor-selected top emitters that have not yet been engaged by these other channels.
The engagement goal is similar to the goals set for Climate Top100 companies and Climate Top1000+ Laggards, to encourage high-emitting portfolio companies to improve their climate management, with a particular focus on 3–10 milestones for net zero alignment.
