Video: How does ESG work in times of inflation?
Companies that exhibit "corporate karma" tend not only to survive but thrive in times of macro uncertainty.
The war in Europe, record high energy prices and a return of inflation are just a few of the factors contributing to market volatility today.
Despite this, our multi-stakeholder approach and long-term outlook help us minimise the impact of these factors and macro undercurrents.
As sustainable investors, we are seeking companies that exhibit "corporate karma" because these are the companies that look not only to survive but to thrive in times of macro uncertainty.
One area at the moment experiencing short-term pressure is the recent strength in energy companies following the surge in oil and gas prices after the Russian invasion of Ukraine. We conclude from recent events that the high and volatile fuel prices we have seen only serve to increase the urgency of countries and governments to reach their full climate transition, and focus companies on reaching their net zero carbon commitments.
Schroders is a signatory of both the Climate Action 100+ and the Net Zero Asset Management initiative and was one of the earliest financial institutions to be a pledged member of the Science Based Target initiative (SBTi. We know first-hand what it takes to make a climate commitment and work towards a climate goal.
As active owners, we have made ambitious engagement plans targeting over 500 companies across a wide range of sectors to encourage companies to commit to climate goals, make transition plans and allow us to measure and monitor performance as they progress.
Where are we currently engaging with companies?
One company that we’ve been engaging with since 2019 is Recruit, a Japanese recruitment company, best known for the websites Glassdoor and Indeed. We successfully engaged with this company initially around governance, particularly around board level and executive management-level gender diversity.
Buoyed by that optimism, we’ve re-engaged with the company around climate transition plans, and we were very pleased to hear the company announced net zero commitments in 2021.
On a recent call with the company, we learned that they have already made short- and medium-term ambitions in line with a 1.5 degree Science Based Target initiative. Importantly, these were linked to management compensation. The focus is now on how to incorporate and minimise indirect Scope 3 emissions, which are predominantly from the commuting of their temporary staff.
Measuring and managing Scope 3 emissions is not an easy task. They have launched initiatives around promoting remote working and promoting green transport, not just for their own staff, but for the staff that they are recruiting to their clients.
We will continue our dialogue with the company, particularly around environmental disclosure, as well as new initiatives around transparency on Scope 3 emissions, and we will look to share best practice across companies that are faced with similar climate challenges.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.