We are often asked by our investors what specific demands we make of companies to achieve the climate targets. Our demands for climate protection and investor protection can be categorised into three core areas:
1. Transparent climate strategy to reduce CO2 emissions
It is important to us that companies disclose and clearly define their climate goals so that they can be measured. Intermediate goals are also important. The goals need to have been validated by an external testing body such as the Science Based Targets Initiative (SBTi) to support their validity and value. The SBTi was able to report last year that companies are succeeding in successfully embarking on the path of reducing greenhouse gases with such science-based targets. Since the adoption of the Paris Agreement, 338 companies, including Enel, Mastercard and Tesco, have reduced their emissions by an average of 25 percent, while global emissions from the energy and industry sectors have increased again by 3.4 percent in the period from 2015 to 2019. The SBTi is an initiative of various organisations that sets reduction targets for greenhouse gas emissions. The Science Based Targets (SBTs) specify how much and how quickly a company must reduce its greenhouse gas emissions in order to limit global warming to below 2°C, or better 1.5°C, in accordance with the Paris Agreement.
Business plans and their implications for the operational and financial course of business should be presented regularly and plausibly by means of integrated reporting. In addition to the clear traceability and measurability of the goals, reporting should also show the financial and (new) technological means by which these goals can be achieved. Guidelines for sustainability reporting have been created by:
- TCFD (Task Force on Climate-Related Financial Disclosures)
- IIRC (International Integrated Reporting Council)
- GRI (Global Reporting Initiative)
- SASB (Sustainable Accounting Standards Board)
2. Clearly defined responsibilities for defining, monitoring and implementing the climate strategy
Business objectives with the highest priority and widespread acceptance in the company not only have the attention of management, but are also incorporated into the business culture. It is important to us that strategic, sustainable objectives are determined, pursued and monitored by the top management board of a company, i.e. the board of directors. For us, it is also important that this responsibility includes industry and company-related ESG and climate capabilities and competences.
3. Incentive systems for implementing the climate strategy
Besides the broader acceptance of climate targets at the highest corporate level, to be successful the targets must be embedded in management compensation plans and account for a significant share of the incentives – at least 10 to 30 percent depending on the industry. It is important to us that ambitious medium-term capital return targets are also set in these compensation plans, such as for parameters including EVA, ROIC and ROE in order to stimulate valuable investments, but also to actively promote the transition to a sustainable business model. This reduces the risk of stranded assets for companies and investors alike.
