Sustainable investing review and outlook

The last year has seen monumental changes in how investors tackle sustainable investing – with what was once a nice to have, becoming a must have for many. Much of this has been catalysed by the pandemic, which has shone a spotlight on the relationship between sustainable business practices and economic resilience. At the same time, governments are facing global calls to direct economic stimulus required for our recovery to “build back better” and to strive for collaborative solutions to global threats like climate change and social inequality.

At Fidelity, we continue to expand the ambition of our sustainable investing practices in three key areas: (i) deeper integration of environmental, social and governance factors in our investment process; (ii) a focus on climate change; and (iii) prioritising social issues exposed by the pandemic including inequality, employee welfare and online inclusion.

ESG integration

Our fundamental research teams deliver proprietary ESG analysis and ratings on our investment universe of over 4,000 issuers around the world, all with the aim of providing our portfolio managers with genuine assessments of current and emerging ESG risks and opportunities and ultimately better-informed investment decision-making. We are further enhancing our scoring framework through 2021 – for example, to help identify climate risk and realise our climate ambition for net zero emissions from our investments by 2050, we are introducing a climate alignment score for each company that shows how far their business aligns or plans to align with a 1.5 degree warming pathway.

Climate change

We aim to reach our own operational net zero emissions target by 2040 and are working hard to speed this up.  We’re also providing greater transparency on our approach using the widely accepted framework of the Taskforce for Climate Related Financial Disclosures (TCFD) and publishing our first ever Corporate Sustainability Report. However, the biggest contribution we can make is through urging our investee companies to decarbonise more quickly and in the last year, we have done just that – through direct engagement with some of the world’s heaviest emitters and financiers of emissions and through global investor collaboration initiatives such as ClimateAction 100+. Through this active engagement, we have persuaded more banks to end coal financing, highlighted the social costs of climate change, and challenged companies to preserve our fragile biodiversity. We also contributed as a founding signatory of the global Net Zero Asset Manager Initiative, which aims to support investing which will get us to net zero by 2050 or sooner, and which now has 87 signatories representing US$37 trillion in assets under management.

Finally, we have changed our voting policy to set minimum climate standards for investee companies, including board oversight of climate risks and emissions reduction targets. We’ve begun the communication of our expectations to boards and management teams and by next year, we will vote against the directors of companies that do not meet them. Climate change is a threat to all of us, and we will seek to play our part and much more in the years ahead.

Employee welfare and online inclusion

Other issues came to the fore over the last year, most notably how companies responded to Covid-19. Governments sought our advice on how best to assist companies financially, and we engaged with firms on supporting their employees and dealing with supply chain disruptions. This included spearheading a collaborative initiative aimed at addressing a humanitarian crisis at sea relating to the stranding of seafarers due to national border restrictions, potentially threatening the global supply chains upon which we all depend. Together with other Australian investors, we co-founded and are now co-chairing Investors Against Slavery and Trafficking, a collaborative engagement initiative addressing modern day slavery, labour exploitation and human trafficking in Asia Pacific supply chains and the Australian businesses reliant on those supply chains

We also saw workforce inequality rise as a result of Covid-19. We regularly discussed with companies on how to narrow the social divide and improve gender diversity, setting ambitious targets for ourselves, but also in our investee companies. Later in the year, we called on companies to limit executive pay and bonuses if they had received emergency government support for their workforce, using our vote against management teams as a stick.

With half the world having no internet access, concerns about digital safety and inclusion increased as we saw work from home become the norm. We therefore broadened our engagements on cyber security to include online welfare, accuracy of information and ethical AI design.

2020 was a year of global existential threat, and we have all had to adapt. But from it has emerged a near-universal desire for a more sustainable world. We just need to make it happen.