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ESG in action: How investment teams are funding research and leaning on laggards

Getting to net-zero by 2025 will require an enormous shift of capital. This can only happen if groups with leverage apply pressure to financial services entities that are at the coal-face of change.

Australian Ethical continues to lead the way for investment managers that can use their scale and capital allocation position as leverage to pressure providers into improving their efforts to limit carbon emissions and move towards a low-carbon future.

The group, guided by its goal of reaching net zero carbon emissions by 20250, remains determined to switch off funding from large financial institutions for unsustainable fossil fuel expansion, and direct it towards investment in what’s known as “clean energy systems” such as wind and solar.

The ambition requires an incredible shift in capital, which in itself necessitates intense research and lobbying from dedicated and influential sources.

  • “We use all our stewardship tools to influence the banks and insurers, including collaborating with civil society, co-filling shareholder resolutions, AGM activism, using the media to call out recalcitrant companies, funding research, and where necessary, divestment,” the group stated in a recent post.

    As an example, Australian Ethical most recently co-financed and contributed to a report commissioned by the Investor Group for Climate Change that studied ‘high-impact’ planned gas projects in Australia and the risk that they would not align with the Paris Agreement, a binding international treaty on climate change.

    Following this, the team met with the sustainability team at QBE Insurance to understand how they were dealing with their exposure to oil and gas. “We were disappointed with their lack of ambition,” Australian Ethical stated, noting that the insurer postponed its assessment and action in the oil and gas sector to 2023 (and in some cases 2040), had set no date for Paris Agreement alignment for companies with less than 30 per cent exposure to oil and gas, and did not apply restrictions to treaty reinsurance of oil and gas exposure.

    The ethical fund manager responded with action, co-filing a shareholder resolution with environmental action group Market Forces calling on QBE to disclose two key items in its annual reporting; short, medium and long-term targets to reduce investment and underwriting exposure to oil and gas, as well as its plans to achieve the Paris Agreement targets.

    Further, Australian Ethical took action at QBE Insurance’s annual general meeting by challenging the group’s policy to wait until 2030 to start restricting its insurance of expansion in the oil and gas sector. “We highlighted that QBE was falling behind its competitors in setting restrictions for the oil and gas sector,” Australian Ethical stated.

    In what the investment group characterised as a “short-term win”, their head of ethics, Alison George, met with QBE Insurance’s CEO after the AGM. The insurer subsequently joined Net Zero Insurance Alliance, a UN-convened group of insurance companies that mandates they transition all greenhouse emissions from their insurance and reinsurance underwriting portfolios to net-zero emissions by 2025, plus set intermediate “science-based” targets every 5 years to achieve these and publish them.

    “We expect last insurance companies to be taking action to restrict underwriting on new projects which are not aligned to the Paris Agreement,” Australian Ethical stated.

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