Climate Change

 

“All creation is the Lord’s, and we are responsible for the ways in which we use and abuse it.” (The Book of Discipline of The United Methodist Church 2012, ¶160.)

Every day, through our Sustainable Investment Strategies, we aim to put the funds we manage on behalf of participants and institutional clients to work in ways that adds financial value, while having a positive impact on the environment and society.

Scientific evidence shows our climate is changing, primarily due to the accumulation of greenhouse gases such as carbon dioxide, nitrous oxide and methane. Their effects on the earth can be measured through warming global temperatures, rising sea levels, extended droughts, and storms that are increasing in frequency and severity.1 Climate change also has a human toll—a burden disproportionately borne by the poor and people living in developing nations.

Governments and businesses worldwide are responding by adopting policies and practices that support a future more reliant on cleaner sources of energy.

Wespath’s Investment Beliefs acknowledge that this global transition to a low-carbon economy is underway. We recognize that the world’s response to this transition will create winners and losers across companies, industries and countries, ultimately impacting investment returns. Wespath’s Avoid—Engage—Invest framework helps us prepare for and support the transition to a low-carbon economy by identifying and prioritizing where climate change-related risks and opportunities are likely to occur.


Avoid—Excluding investments because of sustainability-related financial risk

To assist in identifying and managing environmental, social and governance (ESG)-related risk, Wespath’s board of directors adopted a policy on the Management of Excessive Sustainability Risk in 2014 (found in Wespath’s Statement of Administrative Investment Policy; for a Q&A about the development of our policy, click here). Under the policy, Wespath adopted an associated investment guideline related to climate change with a specific focus on thermal coal.

Engage—Encouraging sustainable business practices and policies

In our experience, actions designed to mitigate the impact of climate change, or adapt to it, align with the interests of long-term shareholders. For more than 20 years, we—along with other sustainable investors—have persuaded companies to adopt reasonable, cost-effective, climate-related strategies, such as:

  • assessing the impact on their businesses from the effects of climate change and global policies designed to mitigate the adverse consequences of a changing climate
  • increasing the use of renewable energy
  • setting greenhouse gas reduction goals and monitoring the results

Our ongoing engagements include meaningful discussions with the world’s largest publicly-traded oil and gas companies about their role in supporting an orderly transition to a low-carbon economy.

Many of Wespath’s recent climate change engagements have been successful:

Engagement Requests—Corporate Outcome
Occidental Petroleum—filed a shareholder resolution asking the company to provide a detailed report assessing the impact of climate change The 2017 result was historic as the first resolution of its kind to receive support from a majority of shareholders. An unprecedented 67% voted in favor. Read more.
Chevron—asked the company to provide an annual assessment of long-term business impacts related to a transition to a low-carbon economy Wespath filed a resolution with the company, which received a strong 41% support in 2016. In 2017, the company took the first step of issuing a climate impact report, and engagement with the company continues. Read more.
Anglo American and Rio Tinto—collaborated with global investors asking for a report on the companies’ strategic resilience in five key climate-related areas Both resolutions had the backing of management and passed in 2016 with overwhelmingly strong support—96% of shareholders voted in favor of the Anglo American Resolution; Rio Tinto received a vote of 99%.
ConocoPhillips—asked the company to “stress test” its oil and gas reserves and report the projected resilience of its assets in a variety of price and demand scenarios In 2013, the company disclosed the results of the “stress-test” and resilience of its assets on its website—a first among large U.S. oil and gas companies.
Engagement Requests—Public Policy Outcome
Paris Climate Agreement—joined four UMC agencies in writing global policymakers at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) in Paris declaring support for a climate deal that limits warming to less than 2-degrees Celsius At COP21 in 2015, 195 countries adopted the first-ever universal, legally binding global climate deal that seeks to limit warming to 2-degrees Celsius.
Alberta’s Climate Policy—joined 120 investors with $4.6 trillion in assets, in asking the Premier of Alberta Canada (home to Canada’s oil sands industry) to strengthen the province’s climate change framework The combined show of support from international players allowed Premier Rachel Notley to institute sweeping changes to environmental policy in Canada’s largest oil-producing province in 2015.


Invest—Seeking companies that will generate market returns, and positive impact

Wespath believes companies positioned to benefit from the transition to a low-carbon global economy are attractive long-term investments. We deploy capital in support of climate solutions:

  • Low-Carbon Energy Solutions—Wespath has dedicated over $500 million to investments in companies providing low-carbon products and services, such as energy efficiency, renewable energy, water infrastructure and pollution control. Our investments specifically focus on companies providing solutions to challenges arising from the effects of climate change.
  • Sustainable Energy in the Developing World—We invested $30 million to support companies providing solar lanterns and solar home systems to poor, rural communities in countries as diverse as Mongolia, Kenya, India and Nicaragua. This investment will enable 200,000 families to overcome a major challenge for more than 2 billion people globally—intermittent or no access to electricity. Wespath is one of the first pension funds to make this kind of investment and is playing a role in pioneering the way to affordable, sustainable energy for all.
  • Sustainable Forestry—Wespath invests in a North American sustainable forestry fund that is certified by the Forest Stewardship Council (FSC). To achieve FSC certification, the forest must be managed in ways that are environmentally, socially and economically sustainable.

Evaluating External Asset Managers on ESG Integration

Wespath also aims to partner with external investment managers adept at integrating environmental, social and governance (ESG) issues into their investment analysis and decision-making processes, as we believe this is essential for long-term value creation.

Since 2014, we have been developing and refining a methodology that helps us understand how ESG integration filters down from organizational policies, to everyday investment decision-making. Our resulting annual ESG Appraisal allows us to evaluate and benchmark our managers on ESG integration, and to provide practical feedback that encourages progress year-over-year. This is an element of the ongoing performance and retention assessment of our managers.

Read more about our process.

Additional Resources

Strategic Approach to Climate Change: Avoid—Engage—Invest
Wespath featured in UMNS: Church Investments Take on Climate Change
Press Release: Historic Investor Support for Wespath’s Engagement With Oil and Gas Giants
Sustainable Investment Report
2016 SIS Highlights
Video: Avoid—Engage—Invest
Analytical Insight: ESG Integration—Evaluating and Monitoring External Asset Manager Performance
 

 

1 http://climate.nasa.gov/effects

 

 
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