Latest Stewardship activity: January


We believe ESG factors can be a major driver of value for EM companies and equities.

Market Developments

World Economic Forum Davos

January is the month where business and political leaders gather in the mountain resort of Davos in Switzerland to debate some of the major challenges facing the world at the World Economic Forum (WEF). In conjunction with these meetings the WEF published the Global Risks report for 2020.

It is interesting to see that for the first time in the history of the Global Risks Perception Survey, environmental concerns dominate the top long-term risks by likelihood among members of the World Economic Forum’s multi-stakeholder community – effectively all top-five risks this year concern the environment, with the common theme behind them being climate change.

The accompanying report looks at

  • Risks to Economic Stability and Social Cohesion
  • Confronting Runaway Climate Threat
  • Dangers of Accelerated Biodiversity Loss
  • Consequences of Digital Fragmentation
  • Health Systems under New Pressure

In addition, the WEF’s International Business Council (IBC) launched a new framework that will enable businesses to report their corporate metrics spanning across four pillars – governance, people, planet, and prosperity. The metrics are in line with the UN Sustainable Development Goals and will be deployed into corporate accounts by 2021.

Climate change

There were a number of important developments over the course of recent weeks in respect of climate change.

Bank of England

The first came from the Bank of England which, at the end of December, published a discussion paper detailing the 2021 Biennial Exploratory Scenario (BES) on the financial risks from climate change. The objective of the 2021 BES is to test the resilience of the current business models of the largest banks, insurers and the financial system to the physical and transition risks from climate change. The BES will focus on sizing risks, rather than testing firms' capital adequacy or setting capital requirements. It will also allow the 'Bank' to examine how major financial firms expect to adjust their business models, and what the collective impact of these responses on the wider economy might be.

The BES will test the resilience of individual firms and the financial system to three climate scenarios. These will include scenarios that embody the risks of earlier and later policy action to reach the Paris Agreement target, and a 'no additional policy action' scenario where the Paris Agreement target is not met and more severe physical risks crystallise as a result. In addition, the BES will use a 30-year modelling horizon – effectively extending the usual horizon.


Microsoft has pledged to become a carbon-negative organisation by 2030, including activity across its entire supply chain. It has also promised to remove all CO2 it released from its operations since its founding in 1975, by 2050. Additionally, it has announced a US$1 billion carbon innovation fund to develop new carbon reduction and removal technologies. The key phrase from the announcement is: ‘Taking responsibility for our carbon footprint. We will take responsibility for all our emissions, so by 2030 we can cut them by more than half and remove more carbon than we emit each year.’

A credible plan on reducing gross emissions is almost more powerful than a commitment to buy credits or offsets to drive reduction in carbon footprint. Here Microsoft has a clear commitment to do both, but without an absolute reduction target in place, there is the potential not to innovate on reductions if corporate level offsets will be bought to do this job for them. That aside, it is good to see Microsoft showing some leadership here.

IEA report on Oil & Gas sector positioning for a transition to IEA's Sustainable Development Scenario

At the WEF in Davos the International Energy Agency (IEA) launched its report highlighting the significant role the oil and gas industry can play in tackling climate change through its engineering capabilities, financial resources and project management expertise.

Among the key take-aways for us:

  • IEA's Sustainable Development Scenario (SDS) maps the transition required for the energy sector to align with the Paris Agreement.
  • Current energy policy gets nowhere close to SDS/ Paris agreement. This is why the UN-backed Principles for Responsible Investment (PRI) have developed their concept of 'Inevitable Policy Response' which would arrive with a bang around 2025.
  • The SDS envisages oil demand peaking mid-decade then falling by c.2.5% p.a. by the 2030s. This rate of decline still requires significant ongoing E&P spend by the oil industry. Capex cessation would see supply fall by c. 8% p.a. and a focus on developing only current producing fields would see supply fall by c.4.5% p.a.
  • Stranded fossil fuel assets look inevitable. Even under current behaviours, around 80% of coal reserves and 50% of oil and gas reserves will remain untapped by 2040.
  • Scope 1&2 emissions1 from the oil and gas sector (from well to end user) account for between 20%–25% of their full-life cycle emissions. The end use by the consumer creates the remaining 80%.
  • Regardless of long-term energy transitions away from fossil fuels, there is much that can be done to reduce emissions from existing production activity. This is particularly the case in relation to reduction of methane emissions.
  • Coal looks set to remain the bad guy in the global energy story, with methane emissions from oil and gas sector coming a close second.
  • Investment by oil & gas companies outside of their core fossil fuel business has been less than 1% of their capex in each of the last five years.

Martin Currie

January has been a relatively quiet month for single company engagement. However, in line with the focus in the market on climate change, Martin Currie made a commitment to sign up to Climate Action 100+ and we are also currently debating the merits of supporting the Taskforce for Climate-related Financial Disclosures (TCFD).


Climate Action 100+ is the largest collaborative engagement to date with more than 360 asset owner and asset managers already signed up. This includes some of our clients – notably some of the large pension schemes in the US and in Australia.


Investors signing up to this initiative commit to engaging on climate change with the largest carbon emitters in the MSCI ACWI companies (if they are held in their portfolios). It currently targets 161 companies in total over a five-year period.

In signing up, we are expressing our support for the aims of the collaborative engagement effort as well as through our own engagement efforts. In addition, similar to PRI collaborative engagements, at various stages through the engagement a letter will be sent to the companies targeted signed on behalf of all the supporters.

Engagement activity is already underway and the group has recently produced a progress report. This sets out the governance and aims of the engagement and provides examples of the resulting progress giving a sense of what success looks like.

Essentially, this is a follow-on initiative from a call by investors to governments to increase efforts to tackle climate change – a statement we signed up to in 2014 and again in 2019.

Taskforce for Climate Related Financial Disclosures

The Taskforce for Climate Related Financial Disclosures (TCFD) is a globally recognised reporting framework developed by the Financial Stability Board. It is designed to enable better information on climate-related risks and opportunities for better integration of the financial impacts of climate change into the investment process. The disclosure framework consists of guidance for disclosures on four key components on governance, strategy, risk management and metrics and targets.

As an initiative driven by the financial sector it is now seen as the benchmark for decision-useful climate-related disclosures and most reporting frameworks are aligning with the TCFD. This includes the global disclosure system CDP and the Sustainability Accounting Standards Board (SASB), as well as the PRI reporting framework. As asset managers the TCFD will also apply to us.

TCFD reporting by listed companies is an important tool to understand how companies are managing climate-related risks. These disclosures should be the result of meaningful action by companies to address the impact of climate change on their business model and strategy. Investors are looking to see companies making TCFD disclosures as evidence of this meaningful action. As of December 2019, support for the TCFD has grown to over 930 organizations (160 of which are asset managers), representing a market capitalization of over US$11 trillion, with a steady rate of new supporters continuing to emerge.

Letter to SEC on proxy advice

Also in January, we signed the letter from the PRI to the Securities and Exchange Commission (SEC) expressing concerns about the proposed changes which will reduce the ability of shareholders to file (or re-file) shareholder proposals and an amendment that requires proxy advisors to share recommendations twice with company management before investors get to see them. Both of these changes are to the detriment of shareholder rights and, in the case of the proxy advisory changes, may have an impact on the timeliness of information and impact the ability to act in the best interest of clients:

Shareholder proposals

The requirements around shareholder proposals necessitate a higher threshold of ownership to put forward a proposal and a much higher threshold to resubmit a proposal. This change is most likely to affect ESG proposals which form the largest proportion of these proposals and are a key instrument for change in US corporates.

Changes to proxy advice

The proposed proxy change is a result of lobbying from businesses which would like to curb the power of the proxy advisers. If implemented, companies would be able to look at the proxy adviser's proposals before they could be distributed to shareholders. Companies would be allotted a review period and the opportunity to provide feedback on the proxy advisor's advice before this is delivered to clients. As companies already have the opportunity to explain their recommendations in their proxy statement, we believe the real effect of the rule change will be in the time that shareholders have to review recommendations from the proxy advisors. Proxy advisors will have less time to collect, verify, analyse and present data to their clients in advance of the annual meeting. Therefore, investors may face delays receiving the reports from the advisory firms and leave them with less time to analyse recommendations.

Upcoming activity

The current month will see a continuation of the work on our next annual Stewardship Annual Report and the annual signatory report to the PRI, both of which are due for completion/submission at the end of March.

Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.

The analysis of Environmental, Social and Governance (ESG) factors form an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.