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AGM Engagement on the physical risks of Climate Change

As a Fund, we've been recognised as a leader in responsible investment since 2005. 
 
This year, our Pensions Committee has agreed to directly engage (on our 40,000 members’ behalf) with those companies where our £4bn of assets are invested, to understand their approach to managing the physical risks of climate change. 
 
Last year, scientists and international governments advised we've 12 years to act to avoid new weather extremes becoming dangerously difficult to manage and insure against. 
 
The Governor of the Bank of England has stated that the whole financial sector has a central role to play in avoiding the catastrophe of climate change.  The Task Force on Climate-related Financial Disclosures identifies physical risks of climate change as a key risk.  
 
We're attending selected company Annual General Meetings (AGMs) (based on those we invest in) to ask questions of Boards regarding their climate change performance and future actions. We'll be doing this along with other large asset owners.
 
We'll keep you updated on progress here. You can also see our latest updates at @EAPensionFund

Questions raised with company Boards:

Diageo 19 September 2019

Robert Gould, Chair of the Environment Agency Pensions Committee, attended the Diageo AGM on 19 September 2019.

Diageo is one of the largest drinks companies in the World.

Robert asked the Board:

How much Board time is devoted to considering how Diageo’s business adapts to climate change? Has the Board undertaken any scenario planning to consider when production in some water-stressed regions may become untenable?

The question was well received by the Diageo Board. It is clear that the Board are taking ESG issues seriously. In response to the question the chair Javier Ferran gave assurance that climate change challenges are dealt with directly by the Board rather than being delegated to a sub-committee.

Reducing environmental impact, especially water stewardship and reduction of carbon emissions, featured strongly throughout the presentation of the Annual Report. Diageo publish a very detailed Sustainability and Responsibility addendum to their annual report.

There were many individual shareholders present but we understand that EAPF was the only pension fund to ask a question.

National Grid 29 July 2019

Robert Gould, Chair of the Environment Agency Pensions Committee, attended the National Grid AGM on 29 July 2019.

Robert asked the Board:

Will National Grid be updating their scenario planning for the future taking on board the UK Climate Projections 2018 data? How will the Board be involved with this work?

Robert’s question was the first one selected to be answered and it was warmly welcomed by company chair Sir Peter Gershon. He agreed to take on board the latest 2018 UK Climate Projections data and to increase the resources for scenario planning. He confirmed that the Board would be fully engaged in scrutinising this work.

Before the meeting, there was an exhibition showcasing some of the company’s activities and the opportunity to talk to staff. From this it was clear that the company is taking climate related risks and opportunities very seriously.

Sir Peter, in presenting the annual report, welcomed the government’s recent commitment to net zero carbon by 2050 and pledged strong support and collaboration with government to achieve this. In 2018/19 £4.5b investment had been made, much of it to support transition to greener energy. National Grid are also committed to the reporting standards of the TCFD [Task Force on Climate-related Financial Disclosures].

There was also a question from a representative from the Local Authority Pension Fund Forum (LAPFF) [of which EAPF is a member] on climate change and asking what plans National Grid had to provide more infrastructure to support electric vehicle charging.

Additional information:

The Transition Pathway Initiative (TPI), which was co-founded by EAPF, recently identified National Grid as one of only 8 companies from the 274 it has analysed to have met all of its criteria for managing carbon emissions well.

United Utilities 26 July 2019

Ian Brindley, Active Member Representative, attended the United Utilities AGM on 26 July 2019.

Ian asked the Board:

Adaptation will need to be dynamic. How much time will the Board devote to reviewing adaptation plans in the coming years and what are your current areas of focus?

The Chair explained that, while climate adaptation is not discussed by that name, it is embedded in United Utilities’ (UU) discussions because of the nature of their business. Water resource planning, flood risk management and asset protection are all part of Board discussions. The Chair commented that, when he first joined the Board over 10 years ago, the word ‘resilience’ would not have been used at a Board meeting, and now it is used in every meeting. He invited the CEO to comment who additionally referred to the partner working UU do around demand management and environmental improvements.

It was encouraging that at the beginning of the meeting and at the end the company’s head of sustainability was keen to discuss the issue and also explained how sustainability and ESG issued are dealt with in the company and how they get escalated to the Board.

Ian says, “Overall, I left with the impression that climate adaptation is reasonably well embedded in the company’s internal processes, but bringing it to the attention of the board through AGM questions is definitely a helpful step”.

SSE 18 July 2019

Greg Black, Active Member Representative, attended the SSE (formerly Scottish and Southern Energy) AGM on 18 July 2019.

Greg asked the Board:

“Over the last year, how many hours have the SSE board spent discussing the physical risks from climate change and what did they conclude?”

In response the Chairman stated that the board discuss climate change “…a lot…” and that this is reflected in the Annual report.

In his opening address the Chairman had highlighted SSE’s support of renewable energy with funding of off-shore wind farms and hydroelectric plants in the Scottish Highlands. Of particular note is the Beatrice offshore wind farm which represents a £2.6bn investment (between SSE, Copenhagen Infrastructure Partners and Red Rock Power Ltd) and with 84 turbines and 588MW is the largest operating offshore wind farm.

The Chairman did not mention other parts of the SSE portfolio, in particular the coal power station in Cheshire and the construction of the Keadby-2 gas fired power station in Lincolnshire. These were acknowledged following a question from a private investor. The Chairman stated that the Keadbly-2 power station will be one of the highest efficiency gas fired plants in Europe and the coal fired station will be shutdown in 2020. The Chairman noted that the Keadby-2 plant is an example of SSE’s investment in innovation to supply low-carbon load following sources of electricity to complement the growing renewables portfolio, which will be needed beyond 2030.

A representative from the ‘Climate Action 100 plus’ initiative asked the Chairman if a remuneration metric will be developed for the board linked to the 2030 and beyond commitments. The Chairman welcomed the question and supported the future adoption of a performance metric, although he noted that would need time to develop this.

Prudential 16 May 2019

Ian Brindley, Active Member Representative, attended the Prudential AGM on 16 May 2019.

Ian asked the Board:

Given the paramount importance of managing the physical risks from climate change, could you please tell me how much direct involvement the Board will have in setting new targets in your forthcoming ESG strategy and in overseeing progress against it?

The Chairman thanked the EAPF for attending and for asking a question on such an important topic. In response they had prepared a statement.

Prudential said that as a life insurer, asset owner, asset manager and occupier of over 400 properties worldwide, they recognised both the risks and opportunities posed by climate change to their businesses, and their Group’s impact on the environment.

Prudential went on to name a number of initiatives they were undertaking or getting involved in. This included:

  • Endorsing the recommendations of the Financial Stability Board’s (FSB) Taskforce on Climate-related Financial Disclosures (TCFD), which they see as crucial in supporting the objective of the Paris Agreement to limit the global temperature rise to well below 2 degrees Celsius;
  • Linking the  management of climate-related risks and opportunities to the remuneration package of relevant executives;
  • Establishing a high-level group to assess the climate related risks and opportunities facing Prudential and oversee action;
  • Participating in a survey to assess the insurance sector’s response to addressing climate risk, where Prudential had ranked 30th out of the 80 largest insurance companies globally;
  • Reducing its Scope 1 and 2 greenhouse gas emissions over the past year by 7 per cent to 28,532 tonnes CO2 driven by factors such as greener energy generation;
  • Contributing to the water scarcity debate;
  • Investing over £100 million in solar, tidal and biomass electricity generation; and
  • Signing up to the global renewable energy initiative, RE100, with a view to achieving 100 per cent renewable electricity procurement by 2025 across both their managed and investment estates.
Lloyds banking group 16 May 2019

The Environment Agency Pension Fund (EAPF) attended the Lloyds banking group AGM on 16 May to raise a question of the board how they managed the physical risks of climate change. The EAPF holds approximately £350,000 worth of shares in Lloyds banking group.

In asking the question, Greg Black, nominated member representative, noted that physical risks are already being seen from climate change and that these affect banks. It was acknowledged that Lloyds banking group recognise this in its 2018 annual report and have a sustainability strategy in place including alignment to TCFD within 5 years and support for the Paris Agreement on climate change and the UK Government’s clean growth strategy.

In response the Lord Blackwell, Chairman of Lloyds banking group, stated that the group recognises the importance of climate change in its business activities. In particular Lord Blackwell stated that the group have significant insurance related activities and are keen that organisations consider the physical risks of climate change in this sector. Lord Blackwell stated that he would welcome future interaction with the EAPF to further explore how these risks can be addressed by the group.

Climate change featured strongly at the event. There was a dedicated stand highlighting Lloyds banking groups’ funding of renewable power generation and support, and use within their own fleet, of electric and hybrid vehicles. An opening speech was given by Sara Weller, Chair of the Responsible Business Committee. Sara discussed the ‘Helping Britain Prosper Plan’ under which Lloyds banking group make public commitments on the issues where it considers it can have the most impact to help Britain proposer economically, socially and environmentally. 

A new sustainability strategy has been developed which focuses on the opportunities and threats related to climate change and the need for the UK to transition to a sustainable low carbon economy. This includes commitment to the TCFD and use and metrics and targets to track performance.  Specific initiatives include investment in the world’s biggest wind farm, Hornsea One in the North Sea and efforts on transport resulting in Lloyds banking group have the UK’s largest low emissions vehicle fleet.

There was one other climate change related question. This was raised by Christian Aid who asked the board to provide a forward roadmap to achieve alignment with TCFD and the Paris Agreement.

Lord Blackwell responded that these are recognised by the group as key targets and efforts to align were discussed in Sara Weller’s opening speech on the sustainability strategy, the representative from Christian Aid thanked the Lord Blackwell for his response.

Barclays Bank 2 May 2019

Can the board give us examples of how they assess and stress-test against the physical risks of climate change the assets and supply chains of companies to which Barclays offers loans, credit or invests in to ensure they are sufficiently robust?

We're keen to understand this to give us confidence in our long-term investment in Barclays.
 
In response Barclays welcomed the recent Bank of England speech about the gathering storm from climate change.  They were very supportive of the Task Force on Climate-related Financial Disclosure.  As a bank they are looking in the next year to build stress tests and modelling to understand the future financial impacts.  The Chair of the Board’s Reputational Risk, Mary Francis, said that the Board had spent a lot of time looking at Climate Change and that she was keen to meet with people who had specific issues they wanted to raise on this agenda. We'll look to do this.

 

 

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