Scientific evidence shows that our climate is changing, primarily due to the accumulation of greenhouse gases such as carbon dioxide. These gases are causing measurable effects: global temperatures are warming, sea levels are rising and storms are increasing in frequency and severity.i
As governments and businesses respond to the changing climate, there will be winners and losers across companies, industries and countries, ultimately impacting investment returns. Our sustainable investment work recognizes this reality, and the Invest—Engage—Avoid framework provides a basis for our related activities.
Climate Action Plan: A foundation for all of our climate-related investment activities that helps us identify, assess and systematically manage financial risks and opportunities
Shareholder Engagement: Focused engagement which leverages our sustainable investing expertise and strategic partnerships to influence conversations about climate-related business and regulatory policies
Investment Exclusions: Excluding investments that are inconsistent with the values of The United Methodist Church (UMC) or that exposed to unsustainable climate-related financial risk
Climate Action Plan and the Low-Carbon Transition
In 2017, Wespath established and implemented its Climate Action Plan to help identify, assess and systematically manage climate-related risks.
Step 1 of the Plan resulted in the creation of the Low-Carbon Transition Investment Belief, which states: “A global transition to a low-carbon economy is underway driven by the world’s assessment of environmental risks. We believe public policies, emerging technologies and physical impacts associated with concerns about climate change are creating winners and losers across companies, industries and countries, impacting investment returns. As prudent fiduciaries, we must assess these global risks and opportunities in the management of our funds.”
Step 2 led us to closely examine our funds and the external asset managers we work with. This assessment is ongoing and includes a measurement of how each of our active managers integrates climate change analysis into their investment processes. This analysis is an element of Wespath's unique "ESG Appraisal" process, where we evaluate how managers incorporate the consideration of environmental, social and governance (ESG) factors into investment decision making.
Step 2 also included an analysis of several passively managed investment strategies. Wespath discovered ways to improve how these strategies might respond to the low-carbon transition, leading to a partnership with BlackRock on the development of the "Transition Ready" investment framework. This sector-neutral framework scores companies based on energy use and management and recommends slightly more investment in those that are better prepared for the low-carbon transition. Read more here:
Wespath also continues also continues to commit to climate-related thematic investments such as water and waste management, sustainable agribusiness, off-grid solar and more. Finally, our extensive shareholder engagement efforts specifically address material, climate-related risks and opportunities.
Climate Change Exclusion Guideline
To assist in identifying and managing ESG-related risk, Wespath's board of directors adopted a policy on the Management of Excessive Sustainability Risk (MESR). Our MESR guidelines currently focus on two issues: climate change (thermal coal) and human rights.
On the issue of climate change, we conduct extensive proprietary analysis and incorporate data from our ESG research provider Sustainalytics to identify and exclude high-risk companies involved in the thermal coal industry. The climate change guideline excludes companies subject to the following limitations:
- Developed Countries: Any company with revenues of 50% or greater stemming from extraction and/or mining of thermal coal
- Developed Countries: Electric utilities deriving 75% or more of their overall fuel mix from coal
- Developing Countries: Any company deriving approximately 50% of revenues from the extraction and/or mining of thermal coal
As of December 31, 2019, we excluded 62 companies under the climate change guideline.