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Fidelity places climate expectations at centre of new voting policy

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Fidelity International, a global asset manager with assets under management of USD787 billion, has said it will vote against company boards that fail to meet its expectations for tackling climate change.

Fidelity will vote against company management that falls short of “minimum expectations” from 2022 onwards, according to its newly-published Sustainable Investing Voting Principles and Guidelines.

Fidelity says that climate change poses “one of, if not the most” significant risks to the long-term profitability and sustainability of companies. 

“Our message to investee companies is clear; the climate crisis must not and cannot be ignored,” says Jenn-Hui Tan, Fidelity’s global head of Stewardship and Sustainable Investing. “It impacts the very nature of major industries in which we invest, and as such must be high on the agenda of all companies.”

The asset manager expects companies to take action to manage climate change impacts and reduce their greenhouse gas (GHG) emissions, and make “specific and appropriate disclosures” around emissions, targets, risk management and oversight. 

“We expect investee companies to do the same and have policies in place to reduce carbon and other greenhouse gas emissions. This includes setting and reporting on ambitious targets aligned to the UN’s Paris Agreement on climate change including an approach to net zero,” says Jenn-Hui Tan.

Fidelity will also increase focus board-level gender diversity. The asset manager will “consider” voting against boards that are not made up of “at least 30 per cent” women, in most developed markets, while markets where standards on diversity are still developing, the asset manager will initially target 15 per cent female representation.

Ulf Erlandsson, founder of Anthropocene Fixed Income Institute, applauded the asset manager’s ESG voting plans, which he says give an “outsized opportunity” to change the trajectory of climate policies.

Analysis from Anthropocene Fixed Income Institute finds that together, Fidelity International and Fidelity Investments are currently “the biggest global equity owners” of Canadian oil sands, through its holdings of companies including energy firm Suncor. 

Producing oil from tar sands has been found to release three times as much greenhouse gas pollution as conventional crude oil.

Last year, Norway’s sovereign wealth fund decided to exclude Suncor from its portfolios, saying that the use of oil sands could be contributing to an “unacceptable level of greenhouse gas emissions”. 

Erlandsson says that Fidelity’s planned voting and engagement decisions could have an “outsized effect of the currently unabated expansion of this type of particularly dirty hydrocarbon production”. 

He continues: “The proof of these recent ESG commitments will be in the oil sands pudding, to paraphrase the old expression.”

Other asset managers have also been signalling their intention to increase voting and engagement on ESG issues. 

The world’s largest asset manager, BlackRock, updated its stewardship guidelines in December to include a request for companies to produce a business plan aligned with achieving net zero by 2050.

BlackRock does appear to be shifting gear, backing 75 per cent of environmental and social shareholder proposals during the first quarter of 2021. In May, the asset manager also supported a proposal at energy company BP calling for faster climate action, which the energy company’s board opposed.

“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity,” wrote the firm’s chairman and CEO, Larry Fink, in his annual letter to CEOs in 2021.

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