GES Carbon Risk Engagement Service

Making the Statement through Portfolio Carbon Footprints

Asset owners and investment portfolio managers are currently reviewing their portfolio carbon footprints. Increasingly, asset owners/managers desire to make a statement of climate concern by reducing their portfolio carbon footprint through portfolio adjustments. While such statements are important signals to the market and the companies, such statements do not address the tons of CO2 emitted that affect the climate. Ultimately, the truly concerned asset owners/investors should add actions to their statements on climate.    

Addressing the problem with Engagement as a carbon risk management tool

To achieve a tangible effect, the primary objective of any climate related action should target the actual tons of CO2 emitted. This can be done in several ways and a number of investor initiatives are underway, particularly aimed at persuading the extractive industries to drastically change the way they operate their business. GES has chosen to focus more on engaging with the companies that have the greatest freedom of choice between CO2 intense and CO2 efficient ways of operating. The starting point is a business case based engagement with the companies that contribute the most to mainstream portfolio CO2 emissions, the power utility sector, whereby investors can achieve not only a tangible reduction in current and future tons of CO2 emitted, but also contribute to a reduced demand for fossil fuel extraction. GES offers investors to pool their climate concerns and participate in direct engagement to achieve tangible reduction in tons of CO2 emitted.

Company selection and engagement approach

GES has focussed the selection on 20 companies from MSCI ACWI, for targeted Carbon Risk Engagement. As a first step, we have selected power utilities as they are the main CO2-emitters in mainstream portfolios. These companies also have the largest demand for coal from fossil fuel producers. However, our approach is applicable to all sectors and engagement efforts are expandable to sectors such as transportation, finance etc.

Three factors are combined in the selection of target companies, to ensure that the engagement is as resource efficient as possible, and that the carbon footprint reduction is maximised from a long-term portfolio perspective:

  1. Performance – Selection based on turnaround opportunity for improved carbon risk management.
  2. Size – Selection based on portfolio weight to ensure the biggest possible portfolio carbon footprint improvement.
  3. Susceptibility – Experience-based selection ensuring that engagement resources are used efficiently.

GES uses its pre-existing thematic engagement processes to run a three-year programme with bi-annual reporting to track progress, in addition to continuously updated on-line reporting on all related activities. The engagement helps companies to improve performance on:

  1. Position on climate change (governance/policymaker interaction)
  2. Greenhouse gas emission inventories (transparency)
  3. Greenhouse gas emission reduction targets and action plans (implementation)
  4. Climate change risks and mitigation strategy (implementation)

Goals and performance metrics

The overarching goal is a long-term reduction of carbon risk exposure and improved competitiveness in a carbon constrained economy. The success of the engagement efforts are independently verified through the use of GES’s partner oekom research AG. Historic, baseline, current and forward-looking performance data is tracked by oekom research AG, which enables performance evaluation over the entire engagement period.

More information:

Contact Senior Engagement Manager Flemming Hedén (+46 73 341 43 22 or flemming.heden@ges-invest.com).