Carbon front of mind for ESG leaders
Following on from the Inside Network’s ESG Masterclass recently, specialist investment manager Martin Currie is fast becoming a climate change leader, through its active ESG investing approach, together with a series of new initiatives that were announced yesterday. These initiatives have significantly enhanced the company’s analysis of environmental, social and governance (ESG) factors.
Martin Currie plans to expand its ESG analysis to include – “Carbon Value at Risk and UN Sustainable Development Goals, focus areas include modern slavery and climate change.”
In order to achieve the expanded analysis, the manager mapped “investee companies to the UN’s Sustainable Development Goals (SDGs) and created a carbon value-at-risk model to calculate the potential impact of carbon pricing on a company’s earnings and market capitalisation.” At the same time, it increased its analysis of modern slavery risks across supply chains.
While the 17 goals set the overall framework, it’s the underlying 169 specific targets that are most relevant to companies, says David Sheasby, head of stewardship and ESG at Martin Currie. “Our analysis has focused on the extent to which companies are able to address or contribute to the relevant targets with more of an emphasis on how – rather than just what – goods and services are delivered,” he says.
Helping companies along this path with a constructive dialogue has proved to be an important element in achieving sustainable development, Sheasby says. “Developing a proprietary carbon value-at-risk tool to analyse the sensitivity and potential impact of carbon pricing on a company’s earnings and market cap enables us to better understand the future impact of climate and energy policy changes on the company.”
Will Baylis, portfolio manager for Martin Currie Australia’s (MCA) Sustainable Equity strategy, spoke at the Inside Network’s ESG Masterclass. He drew upon extensive meetings with company management, executives and boards over several decades to offer an insight into Martin Currie’s unique approach to ESG investing.
That said, Baylis highlighted the importance of materiality when it comes to making ESG assessments and considering the net sustainability benefit of the companies they consider. He highlighted the risk of simply divesting from companies and the fact that this effectively denies the investor of the opportunity to enact change at so-called ‘bad companies.’
Stewardship is a critical element to every investment approach, but must be entrusted to company management. Reflecting on Martin Currie’s 1,000 company meetings in 2020, Baylis confirmed 91 individual engagements were made with an overwhelming majority focused on improving corporate governance.
Putting concepts into practice, examples were raised ranging from the health implications of sugary drinks sold by Coca-Cola Amatil (ASX:CCL), to BHP’s (ASX:BHP) tailings dam failures and the actions of the banking sector, which ultimately led to the Royal Commission. With somewhat of a leadership position in the sector, Martin Currie used its carbon-value-at-risk tool to identify companies truly committed to change. Woodside Petroleum (ASX:WPL) was identified as an example where engagement can overcome divestment, with the company delivering $100 million in carbon offsets via the planting of 40 million native trees in Western Australia. As part of Martin Currie’s outstanding efforts to combat climate change, the proprietary carbon value-at-risk tool will help firms to better understand the energy policy changes and the future impact of climate change.