Andrew Gray is Director, ESG & Stewardship at AustralianSuper, Climate Action 100+ steering committee member and current chair of the initiative. In this interview with Steering Committee Coordinator Casey Aspin, he:
- reviews the achievements of the initiative as a whole, and
- offers advice on effective collaborative engagement, with specific insights from Australia
Climate Action 100+
Q. Nearly three years in, what do you see as the initiative’s biggest accomplishments?
A. At a high level, I think the initiative has accomplished four things. It has:
- given investors a louder voice by tackling climate change engagement in a coordinated, global fashion.
- enabled investors to develop a common framework and language for tackling climate change at the companies responsible for a large proportion of global emissions, including metrics for measuring progress.
- facilitated investor learning about technical issues and strategy across regions and across sectors.
- harnessed talent at each of the five investor networks to support an initiative that is becoming greater than the sum of its parts.
Of course, underneath all of this are the tangible outcomes at companies that must happen for the initiative to succeed. Every net zero by 2050 or science-based target (SBT) commitment is an accomplishment. So far, Climate Action 100+ engagement teams have secured numerous net zero and SBT commitments across a range of hard-to-decarbonize companies and sectors where this was unimaginable a short time ago. In some cases, companies have issued joint statements with the investor engagement team, which shows that companies see value in associating with Climate Action 100+ when demonstrating what they are doing on climate change. It is gratifying to see, in less than three years, the initiative become the leading driver of corporate decarbonisation efforts.
Q. What has surprised you?
A. How dynamic and constantly evolving climate work is. At the start of the initiative in 2017, there was a generic ask: Reduce emissions in line with the Paris Agreement. Due to IPCC consensus around what that looks like, the ask has evolved to net zero by 2050, with 1.5 degrees Celsius in average warming the goal rather than 2 degrees. As we have evolved our asks, so we must evolve the benchmark for measuring performance against those asks.
The evolution of data, of climate science, of engagement culture, of the political climate—there are many moving parts that present a variety of challenges. In the midst of so much change, companies have become more willing to engage and more willing to make public statements. I think that is partly due to the persistence of the investors engaging under the Climate Action 100+ banner.
I’m also surprised that we have more than 450 signatories at this point. I think that speaks to the importance to the investment community of climate risk and to the help they need in tackling this risk—it’s hard to do alone!
The following questions are based on AustralianSuper’s experience as lead investor at Qantas and Rio Tinto.
Q. How do you think lead investors can best support and involve collaborators?
A. The lead investor must have the mindset that investor engagement is best achieved by a group, not an individual. A successful team needs a variety of skills and the lead must bewilling to use the broad group. The lead must be communicative and open. The lead investor should set out a vision for the engagement, assess what skills are needed, and recruit those skills from among collaborators. A successful lead will see organising collaborators not as a burden (it is extra work: more phone calls, more meetings) but as a necessary piece of building a team that will be critical to the engagement’s success. Often the lead investor has a history of engagement with the company and it should share its insights and experience with the group.
Q. Is there competition among investors that would undermine collaboration?
A. At the end of the day, collaborators are co-investors in the company. We all want the company to address climate risk. We all benefit when this shared investment becomes a sounder investment. I’ve seen a healthy competitive spirit in the initiative. When an engagement team secures a big win, that spurs other teams on.
Q. How do you think collaborating investors can best support lead investors?
A. Be engaged, make sure you are active. Think about your skill set and bring that to the table. Share insights from other engagements. Be open and flexible. Ask what the lead investor needs and be supportive. Offer advice. I like it when investors pitch in on strategy discussions. It’s healthy to have a debate around strategy and a company’s response to the engagement.
Q. What advice do you offer when members on the team disagree?
A. These are strong willed and intelligent people. The lead’s job is to harness their motivation to act on climate. The lead investor needs to show strength and leadership. At the same time, the leader can’t control everyone. If a collaborating investor takes a strong view that diverges from the team, that investor is allowed to engage separately on that issue. It is unlikely to be counter to the goal of the team engagement.
Many companies welcome engagement with Climate Action 100+ because they can reduce many meetings with smaller shareholders with multiple positions into a single meeting with a group speaking with one voice. That isn’t to say, however, that members of the engagement team—or other members of Climate Action 100+—should stop individual engagements with companies. If an investor has achieved a level of trust and credibility through a longstanding relationship with a company, the team can leverage that relationship so the investor is reinforcing engagement goals in individual meetings.
Q. What are some of the key factors of a successful engagement?
- Be clear on what you are asking companies to do. In a lot of cases, companies want to respond to shareholders but they are not clear what shareholders are asking.
- Develop a strategy over at least the next 12 months. Think beyond the next engagement meeting. Often with engagements, we start with members of the sustainability and operations teams so we understand fully how climate change is affecting the company. Then we move to board level. With some companies, we have annual dates to work around: the AGM and the annual release of the TCFD report both influence our engagement calendar and strategy.
- Acknowledge accomplishments, which sets the stage for the next level of engagement. Rio’s first TCFD report included no targets, but it was a start. Its 2020 report includes emissions targets for scope 1 and 2. These are signposts along the way that should be acknowledged.
- Bring the required skills into the team, for example company- or sector-specific knowledge. AustralianSuper’s mining sector analyst provides incredibly valuable input on engagements as a sector expert.
Q. How do you get the right people from the focus company to engage?
A. We as investors have to earn access. We have to show we have the credibility and skills to seriously engage. Investor relations’ job is to screen those seeking access to company leaders. They don’t want to waste board members’ or managers’ time. If investors demonstrate that they’ve done their homework and have a focused approach, the company is more likely to grant access at the appropriate level. Investors need to be able to answer questions on why they need to talk to this or that particular person.
Q. What advice would you give investors engaging focus companies in challenging political environments?
A. A supportive political environment is nice to have, but not necessary. Even if you don’t have supportive policy settings, you can still conduct effective engagements. I don’t want to downplay the importance of policy because it sets the ground rules and facilitates technology pathways and long-term certainty around investment. It’s helpful and important but not necessary to have a successful engagement. One of the key elements of our engagements is lobbying activity, which seeks to remove the barriers companies erect to progress on policy. So there is a virtuous circle at play.
Q. Have the bushfires altered the political environment in Australia?
A. They have certainly created greater urgency among policy makers on climate. Right now COVID, justifiably, is taking a lot of attention. As policy makers put in place the conditions needed for economic recovery, we are advocating for sustainability to be built in.
Q. What advice would you give investors engaging focus companies in regions or sectors with little history of engagement?
A. Keep plugging away. Shareholders appoint directors to act as their representatives. We have to be confident that engagement is the right mechanism to bring shareholders and directors into alignment. We have a right to seek a response to issues that threaten our investments. Companies that resist engagement are not acknowledging the role of the board in protecting shareholder interests.
If you can’t meet with the board, start with whomever is made available and prove your credibility, given them a reason for deepening access. Remove any blockages they may have to taking the next step.