Preventable Surprises Calls For Forceful Stewardship

“Sometimes something really important comes to all of us … Forceful Stewardship is key,” so tweeted James Bevan, CIO of CCLA, the specialist Fund Manager for UK charities and the public sector.

Mr. Bevan was referring to Preventable Surprises’ new report, “Investors, Climate Risk and Forceful Stewardship: An Agenda For Action.”

The 134-page report is the output of a week-long online dialogue of over 70 senior finance sector professionals and other experts from around the world, considering how investors might play a bigger role in the solution to “Big Climate Risk.” Targeted at senior investment decision-makers – all those who influence them – the report explores how Forceful Stewardship might work in practice and where and how it can best be employed.

The Forceful Stewardship Guidelines provide a blueprint for pension trustees (and other asset owner decision-makers) to act on portfolio climate risk and to protect themselves against legal liability for negligence. In brief, the guidelines recommend pension leaders to:

1. Declare their intentions to vote in favour of shareholder resolutions that will help reduce systemic climate risk while growing shareholder value in the long-term;

2. Instruct voting advisers to vote automatically in favour of climate risk-mitigating resolutions. If current voting agents are unable to support this obligation, find agents who will;

3. Vote in favour of resolutions that call for listed companies to publish robust analyses of their assessments of the physical, policy and economic impacts to their businesses of carbon budgets under 2°C and 4°C warming scenarios respectively.

The report also recommends reviewing investment beliefs that underpin these actions.

In the context of the physical impacts and market and regulatory shifts associated with climate change that put portfolios at risk of significant losses, Preventable Surprises Founder and Chief Executive, Dr Raj Thamotheram, explained why it is time for investors to prepare portfolio companies for a transition to a low-carbon economy:

“Big Climate Risk is currently off the radar for most investors, yet the potential value at risk for investment portfolios — including yours and my pension fund nest eggs — is staggering. Three  key messages from the virtual dialogue were

1. Investment specialists from many countries and all parts of the investment chain agree that inducing portfolio companies to adopt low carbon, 2-degree business models could be a very leveraged action: it is both forceful and systemic.
2. The decision to do this has to be taken by boards and senior executives of investors – it can’t be passed down to the head of ESG.

3. Collaboration between investors and civil society specialists, particularly scientists and policy advocates, is essential.”

John Rogers, a former President and CEO of the CFA Institute and also a participant in the dialogue, indicated his hope that Forceful Stewardship will “add to the body of best practice standards”, highlighting how, “during my time in a leadership capacity at the CFA Institute, it became clear how valuable the thoughtful setting of best practice standards and benchmarks is to the investment profession, to boards of institutional investors, and the finance industry.”

The virtual dialogue, conducted on the online engagement platform Convetit, garnered almost 600 posts in 6 distinct Discussion Tabs submitted by 77 participants from 15 countries. A mid-event survey showed high support for all 7 Forceful Stewardship hypotheses tested – in one instance, rising from 24 to 77 percent support (see infographic) – demonstrating the value of virtual dialogic debate in informing participants of the value proposition of Forceful Stewardship.