Climate Change investment strategies - CFA Institute...STOXX Global Climate Impact Index Industry...
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October, 2017 Climate Change investment strategies
Transcript of Climate Change investment strategies - CFA Institute...STOXX Global Climate Impact Index Industry...
October, 2017
Climate Change investment strategies
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Agenda
1 Introduction
2 Climate Change data
3 Climate Change investment strategies- Best in Class - Benchmark
4 Climate Change engagement
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1. INTRODUCTION
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Climate change approach brings together industry leaders
» CDP, an NGO, holds the largest collection globally of self reported climate change, water and forest-risk data
» Ranked # 1 by investors in climate change research
» ISS Ethix offers climate solutions to institutional investors and cooperates with CDP to provide robust estimated data
Index creation
Recognized and regarded data providers with high quality carbon data and index technology
» STOXX provides a leading index calculation engine and proprietary insights to index construction to create investable strategies
STOXX Low Carbon indices STOXX Climate Change indices
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2. CLIMATE CHANGE DATA
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Low Carbon indices: Scope 1, 2 & 3 emissions
1) Source: Greenhouse Gas Protocol
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Distribution of carbon intensities
How to lower carbon footprint of your investment portfolio?
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Analyzing climate change risks and opportunities
1) Source: CDP
Which European electric utilities are prepared for a low carbon transition?
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CDP’s climate scoring approach and ratings
1) Source: CDP
Disclosure
• “This is where we’re at”
Awareness
• “What does climate change mean to our company?”
Management
• “How do we manage our climate change risks and impacts?”
Leadership
• “How can we solve the climate change problem?”
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3. CLIMATE CHANGE INVESTMENT STRATEGIES
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Index Carbon reductionNo. of constituents(2012) and 20162)
STOXX Global Climate Change Leaders GR (CDP A-List)Best in class
74% vs STOXX Global 1800
GR (EUR)(68) 179
STOXX Global Climate Impact indices (CDP rating A & B-)Benchmark with impact
66% vs STOXX Global 1800
GR (EUR)(337) 696
STOXX Global Climate Awareness Indices (CDP rating A & C-)Benchmark
64% vs STOXX Global 1800
GR (EUR)(605) 966
1) Source: STOXX data 3y: 17/01/2014 to 18/01/2017
2) Source: STOXX data: 24 December 2012 and 19 December 2016
Climate Change investment strategies
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STOXX Climate Change indices
Methodology
Un
ive
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Se
lec
tio
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hti
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» STOXX® Global 1800» Exclude:
» ICB subsector Coal (1771) » UN Global Compact Violations and Controversial Weapons
» Select all stocks on CDP A-List» Select all stocks from the Universe with a CDP Performance Band Score of A to B- (Climate
Impact)» Select all stocks from the Universe with a CDP Performance Band Score of A to C- (Climate
Awareness)
» Price weighted: » Free-float market cap multiplied by the corresponding Z-score carbon intensity factor of
each constituent with constituent capping at 5% » Overweight stocks with lower carbon intensities, underweight those with higher
emissions
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STOXX Global Climate Change Leaders GR (EUR) Index
Risk and return characteristics1) Index performance
The STOXX Global Climate Change Leaders GR (EUR) Index has an 74% lower carbon footprint than the STOXX®
Global 1800 GR (EUR) Index
STOXX Global Climate
Change Leaders EUR GR
STOXX Global 1800 EUR
GR
Overal
l2) 1y2) 3y2) 5y2)
Overal
l2) 1y2) 3y2) 5y2)
Performance
(actual)155.2% 25.9% 52.8% 131.8% 125.7% 15.9% 46.0% 103.3%
Performance
(annualized)18.3% 25.0% 14.7% 17.8% 15.7% 15.3% 13.1% 14.8%
Volatility
(annualized)13.5% 11.0% 15.2% 13.6% 12.5% 10.0% 14.4% 12.7%
Tracking error
(annualized)0.0% 0.0% 0.0% 0.0% 4.1% 3.6% 3.6% 3.9%
Maximum
drawdown22.1% 6.8% 22.1% 22.1% 21.2% 4.8% 21.2% 21.2%
Sharpe ratio
(annualized)3) 1.31 2.13 0.99 1.28 1.23 1.51 0.94 1.15
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120
140
160
180
200
220
240
260
STOXX Global 1800 EUR GR STOXX Global Climate Change Leaders EUR GR
1) Source: STOXX, daily data. Relative figures calculated against STOXX Global Climate Change Leaders EUR GR
2) Overall: 19/12/2011 to 31/05/2017; 1y: 31/05/2016 to 31/05/2017; 3y: 30/05/2014 to 31/05/2017; 5y: 31/05/2012 to 31/05/2017
3) Eonia rate used as proxy for riskless returns
Best-in-Class approach
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STOXX Global Climate Change Leaders GR (EUR) Index
Industry Weights
STOXX Global 1800 GR EUR Industry weights1)
1) Source: STOXX: 19 December 2016
STOXX Global Climate Change Leaders GR (EUR)
Industry weights1)
Basic Materials
4.42%Consumer
Goods12.92%
Consumer Services11.46%
Financials22.16%
Health Care11.34%
Industrials13.28%
Oil & Gas6.66%
Technology10.96%
Telecommunications3.49%
Utilities3.32%
Basic Materials
2.75%
Consumer Goods28.03%
Consumer Services
2.54%
Financials16.32%
Health Care8.07%
Industrials12.04%
Oil & Gas0.56%
Technology22.88%
Telecommunications4.36%
Utilities2.45%
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STOXX Global Climate Change GR (EUR) Index Country
Weights
1) Source: STOXX: 19 December 2016
STOXX® Global 1800 GR EUR Country weights1)STOXX Global Climate Change Leaders GR (EUR)
Country weights1)
AT 0.05% AU 3.93% BE 0.09%
BR 0.01%
CA 0.60%
CH 9.02%
CN 0.99%
DE 4.77%
DK 1.53%
ES 2.96%
FI0.65%
FR 3.39%
GB 12.30%
IE 0.08%
IN 0.18%
IT 1.70%
JP 9.82%KR 6.11%
NL2.31%PT 0.13%
SE 0.61%
TR 0.13%
TW0.12%
US 38.29%
ZA 0.21%
AT0.09%
AU2.83%
BE0.44% CA
3.33%CH
3.28%
CZ0.02%
DE3.41%
DK0.61%
ES1.15%
FI0.39%
FR3.70%
GB6.81%
HK1.11%
IE0.22%
IT0.84%
JP10.40%
LU0.08%
NL1.08%
NO0.24%
NZ0.08%
PT0.06%
SE1.09%
SG0.55%
US58.21%
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STOXX Global Climate Change Leaders Index Composition
Company, Industry and Country
1) Source: STOXX: 19 December 2016
Basic Materials Consumer Goods Consumer Services Financials Health Care
AKZO NOBEL
Anglo Platinum Ltd
BAYER
BILLERUDKORSNAS
Gold Fields Ltd
HARMONY GOLD MNG.
INTL.FLAVORS & FRAG.
KONINKLIJKE DSM
Kumba Iron Ore Ltd
LANXESS
LG Chem Ltd
METSA BOARD B
MONDI
Mosaic Co.
Praxair Inc.
Sibanye Gold
STORA ENSO R
SYMRISE
UPM KYMMENE
ARCELIK
ASAHI GROUP HDGS
BIC
BMW
Coca-Cola European Partners
COCA-COLA HBC
Colgate-Palmolive Co.
DAIMLER
DIAGEO
ELECTROLUX B
FIAT CHRYSLER AUTOMOBILES
GENERAL MOTORS
Hyundai Motor Co
Japan Tobacco Inc.
Kirin Holdings Co. Ltd.
LG Electronics Inc
L'OREAL
MICHELIN
NESTLE
Nissan Motor Co. Ltd.
PEUGEOT
Philip Morris International In
RENAULT
Reynolds American Inc.
Samsung Electronics Co Ltd
Sony Corp.
Stanley Black & Decker Inc.
Sumitomo Forestry Co. Ltd.
SVENSKA CELLULOSA B
Toyota Motor Corp.
UNILEVER PLC
Yokohama Rubber Co. Ltd.
Gap Inc.
Industria de Diseno Textil SA
Las Vegas Sands Corp.
PICK N PAY STORES
Qantas Airways Ltd.
REED ELSEVIER PLC
SAINSBURY (J)
SKY
TESCO
TUI
Bank of New York Mellon Corp.
BRITISH LAND COMPANY
CAIXABANK
Dai-ichi Life Holdings
Daito Trust Construction Co. L
Dexus Property Group
Goldman Sachs Group Inc.
Great-West Lifeco Inc.
Host Hotels & Resorts Inc.
HSBC
ICADE
ING GRP
INTESA SANPAOLO
KLEPIERRE
LLOYDS BANKING GRP
Macerich Co.
MAPFRE
National Australia Bank Ltd.
Nedbank Group Ltd
RAIFFEISEN BANK
INTERNATIONAL
Shinhan Financial Group Co Ltd
Sompo Holdings
Stockland
TURKIYE GARANTI BANKASI
UBS GROUP
Westpac Banking Corp.
ASTRAZENECA
GLAXOSMITHKLINE
H. LUNDBECK
MEDICLINIC INTERNATIONAL
NOVO NORDISK B
NOVOZYMES
ROCHE HLDG P
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STOXX Global Climate Change Leaders Index Composition
Company, Industry and Country
1) Source: STOXX: 19 December 2016
Industrials Oil & Gas Technology Telecommunications Utilities
ABERTIS INFRAESTRUCTURAS
Accenture PLC Cl A
ACCIONA S.A.
AMADEUS IT GROUP
BOUYGUES
Canadian National Railway Co.
CNH Industrial NV
EcoRodovias Infr
FERROVIAL
HEIDELBERGCEMENT
Hyundai Eng&Con
Johnson Controls PLC
Kajima Corp.
Kawasaki Kisen Kaisha Ltd.
KINGSPAN GRP
Komatsu Ltd.
KONE B
LG Innotek
Lockheed Martin Corp.
Mitsubishi Electric Corp.
Nabtesco Corp.
OWENS CORNING
PHILIPS
Remgro Ltd
Republic Services Inc.
SALINI IMPREGILO
SAMSUNG C&T CORP
Samsung Eng
SCHNEIDER ELECTRIC
SEALED AIR
Secom Co. Ltd.
SGS
SKANSKA B
Taisei Corp.
THYSSENKRUPP
TODA
Toshiba Corp.
Union Pacific Corp.
Valmet
Waste Management Inc.
ENI
GALP ENERGIA
NESTE
VERMILION ENERGY INC.
Advanced Semiconductor Enginee
ALPHABET CLASS C
Apple Inc.
ATOS
Autodesk Inc.
Canon Inc.
Cisco Systems Inc.
HP Inc.
KONICA MINOLTA INC.
LG Display Co Ltd
Microsoft Corp.
Oracle Corp.
Tech Mahindra
Wipro Ltd
China Mobile Ltd.
DEUTSCHE TELEKOM
KPN
KT Corp
LG Uplus
PROXIMUS
SWISSCOM
TELEFONICA
Telstra Corp. Ltd.
CENTRICA
EDF
EDP ENERGIAS DE PORTUGAL
ENAGAS
ENEL
ENGIE
GAS NATURAL SDG
IBERDROLA
IREN
KOREA DISTRICT HEATING
Korea Electric Power Corp
NATIONAL GRID
PG&E Corp.
RED ELECTRICA CORPORATION
SNAM RETE GAS
SUEZ ENVIRONNEMENT
VEOLIA ENVIRONNEMENT
VERBUND
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STOXX Global Climate Impact Index
1) Source: STOXX, daily data. Relative figures calculated against STOXX Global Climate Impact Ex Global Compact & Controversial Weapons
EUR (GR)
2) Overall: 24/12/2012 to 18/01/2017; 1y: 18/01/2016 to 18/01/2017; 3y: 17/01/2014 to 18/01/2017
3) EONIA rate used as proxy for riskless returns
STOXX Global Climate
Impact Ex Global Compact &
Controversial Weapons GR
(EUR)
STOXX® Global 1800 GR
(EUR)
Overall2) 1y2) 3y2) Overall2) 1y2) 3y2)
Performance
(actual) 81.78% 21.85% 46.22% 82.21% 22.54% 47.11%
Performance
(annualized) 15.42% 21.01% 13.11% 15.48% 21.68% 13.33%
Volatility
(annualized) 13.62% 13.79% 14.74% 13.44% 13.24% 14.55%
Tracking
error
(annualized) 0.00% 0.00% 0.00% 2.01% 1.94% 1.92%
Maximum
drawdown 20.94% 10.39% 20.94% 21.20% 10.12% 21.20%
Sharpe ratio
(annualized)3) 1.13 1.47 0.92 1.14 1.57 0.94
Risk and return characteristics1) Index performance
The STOXX Global Climate Impact Ex Global Compact & Controversial Weapons GR (EUR) Index has a 66% lower
carbon footprint than the STOXX® Global 1800 GR (EUR) Index
90
110
130
150
170
190
210
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STOXX Global 1800 EUR GR STOXX Global Climate Impact Ex UNGC & CW EUR GR
Benchmark approach with impact
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STOXX Global Climate Impact Index Industry Weights
STOXX® Global 1800 GR EUR Industry weights1)
1) Source: STOXX: 19 December 2016
STOXX Global Climate Impact Ex Global Compact &
Controversial Weapons GR (EUR) Industry weights1)
Basic Materials
4.42%Consumer
Goods12.92%
Consumer Services11.46%
Financials22.16%
Health Care11.34%
Industrials13.28%
Oil & Gas6.66%
Technology10.96%
Telecommunications3.49%
Utilities3.32%
Basic Materials
3.86%
Consumer Goods 15.67%
Consumer Services
7.30%
Financials22.57%
Health Care11.56%
Industrials12.22%
Oil & Gas3.85%
Technology15.69%
Telecommunications 5.83%
Utilities 1.45%
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STOXX Global Climate Impact Index Country Weights
1) Source: STOXX: 19 December 2016
STOXX® Global 1800 GR EUR Country weights1)
STOXX Global Climate Impact Ex Global Compact &
Controversial Weapons GR (EUR) Country weights1)
AT0.09%
AU2.83%
BE0.44% CA
3.33%CH
3.28%CZ
0.02%
DE3.41%
DK0.61%
ES1.15%
FI0.39%
FR3.70%
GB6.81%
HK1.11%
IE0.22%
IT0.84%JP
10.40%
LU0.08%NL
1.08%
NO0.24%NZ
0.08%
PT0.06%
SE1.09%
SG0.55%
US58.21%
AT0.03%
AU3.24%
BE0.57% CA
2.68% CH5.11%
DE4.68%
DK0.69%
ES1.81%
FI0.46%
FR4.78%
GB10.11%
HK0.25%
IE0.17%
IT0.93%
JP11.35%
LU0.01%NL
0.86%NO
0.31%NZ
0.02%PT
0.07%SE
1.33%SG
0.13%
US50.41%
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STOXX Global Climate Awareness Index
STOXX Global Climate
Awareness Ex Global
Compact & Controversial
Weapons GR (EUR)
STOXX® Global 1800 GR
(EUR)
Overall2) 1y2) 3y2) Overall2) 1y2) 3y2)
Performance
(actual) 81.29% 21.49% 44.98% 82.21% 22.54% 47.11%
Performance
(annualized) 15.34% 20.67% 12.80% 15.48% 21.68% 13.33%
Volatility
(annualized) 13.58% 13.64% 14.69% 13.44% 13.24% 14.55%
Tracking
error
(annualized) 0.00% 0.00% 0.00% 1.45% 1.35% 1.40%
Maximum
drawdown 21.30% 10.23% 21.30% 21.20% 10.12% 21.20%
Sharpe ratio
(annualized)3) 1.12 1.47 0.90 1.14 1.57 0.94
Risk and return characteristics1) Index performance
The STOXX Global Climate Awareness Ex Global Compact & Controversial Weapons GR (EUR) Index has a 64% lower
carbon footprint than the STOXX® Global 1800 GR (EUR) Index
1) Source: STOXX, daily data. Relative figures calculated against STOXX Global Climate Awareness Ex Global Compact &
Controversial Weapons EUR (GR)
2) Overall: 24/12/2012 to 18/01/2017; 1y: 18/01/2016 to 18/01/2017; 3y: 17/01/2014 to 18/01/2017
3) EONIA rate used as proxy for riskless returns
90
110
130
150
170
190
210
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STOXX Global 1800 EUR GR STOXX Global Climate Awareness Ex UNGC & CW EUR GR
Benchmark approach
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STOXX Global Climate Awareness Index Industry Weights
STOXX® Global 1800 GR EUR Industry weights1)
1) Source: STOXX: 19 December 2016
STOXX Global Climate Awareness Ex Global Compact
& Controversial Weapons GR (EUR) Industry
weights1)
Basic Materials
4.42%Consumer
Goods12.92%
Consumer Services11.46%
Financials22.16%
Health Care11.34%
Industrials13.28%
Oil & Gas6.66%
Technology10.96%
Telecommunications3.49%
Utilities3.32%
Basic Materials
3.35%
Consumer Goods 16.10%
Consumer Services
9.60%
Financials22.49%Health Care
12.52%
Industrials11.60%
Oil & Gas4.57%
Technology13.76%
Telecommunications 4.83%
Utilities 1.19%
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STOXX Global Climate Awareness Index Country Weights
1) Source: STOXX: 19 December 2016
STOXX® Global 1800 GR EUR Country weights1)
STOXX Global Climate Awareness Ex Global Compact
& Controversial Weapons GR (EUR) Country weights1)
AT0.09%
AU2.83%
BE0.44% CA
3.33%CH
3.28%CZ
0.02%
DE3.41%
DK0.61%
ES1.15%
FI0.39%
FR3.70%
GB6.81%
HK1.11%
IE0.22%
IT0.84%
JP10.40%
LU0.08%
NL1.08%
NO0.24%
NZ0.08%
PT0.06%
SE1.09%SG
0.55%
US58.21%
AT 0.02%
AU 3.11% BE 0.50%
CA 3.37%
CH 4.58%
DE 3.92%
DK 0.67%
ES 1.47%
FI 0.41%
FR 4.13%
GB 8.91%
HK 0.56%
IE 0.17%
IT 0.83%
JP 10.64%
LU 0.01%NL 1.12%
NO 0.29%
NZ 0.07%
PT 0.05%
SE 1.34%
SG 0.18%
US 53.65%
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4. CLIMATE CHANGE ENGAGEMENT
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Which companies are not responding to CDP?
100 Largest Co’s By FF MCap
1) Source: STOXX: 19 December 2016
Amazon.com Inc. BROOKFIELD ASSET MANAGEMENT Edison International CK Property Holdings
FACEBOOK CLASS A S&P GLOBAL Williams Cos. FLEETCOR TECHNOLOGIES
Berkshire Hathaway Inc. Cl B LYONDELLBASELL INDUSTRIES HCA HOLDINGS Regions Financial Corp.
Gilead Sciences Inc. MUENCHENER RUECK AutoZone Inc. Mylan Inc.
Priceline Group Inc Keyence Corp. St. Jude Medical Inc. Nucor Corp.
Softbank Group Corp. AON PLC UNIBAIL-RODAMCO Fortive
CHARTER COMMUNICATIONS CL.A Spectra Energy Corp. Public Service Enterprise Group INVESTOR B
NextEra Energy Inc. Boston Scientific Corp. Consolidated Edison Inc. ULTA SALON COSMETICS
Caterpillar Inc. SYNCHRONY FINANCIAL SAMPO C.R. Bard Inc.
Netflix Inc. Ross Stores Inc. Progressive Corp. Willis Towers Watson
General Dynamics Corp. SunTrust Banks Inc. MONSTER BEVERAGE Marathon Oil Corp.
LVMH MOET HENNESSY Alexion Pharmaceuticals Inc. Sun Hung Kai Properties Ltd. Cerner Corp.
Dominion Resources Inc. Nintendo Co. Ltd. RECRUIT HOLDINGS Transurban Group
Southern Co. O'Reilly Automotive Inc. United Overseas Bank Ltd. Loews Corp.
AMERICAN TOWER MARATHON PETROLEUM DOLLAR GENERAL SMC Corp.
PayPal Holdings CBS Corp. Cl B Dollar Tree Inc. ESSEX PROPERTY TST.
Aetna Inc. ZOETIS 'A' Paychex Inc. Vulcan Materials Co.
KINDER MORGAN Activision Blizzard Inc. ALIMENTATION CCH.TARD National Oilwell Varco Inc.
CME Group Inc. Cl A Apache Corp. ATLAS COPCO A Genuine Parts Co.
PHILLIPS 66 Fidelity National Information Vornado Realty Trust SKYWORKS SLTN.
BB&T Corp. Intuitive Surgical Inc. CONCHO RESOURCES REALTY INCOME
INTERCONTINENTALEXCHANGE INC Electronic Arts Inc. INCYTE Citrix Systems Inc.
CK HUTCHISON HOLDINGS TESLA MOTORS Boston Properties Inc. PANDORA
Pioneer Natural Resources Co. PPL Corp. Vertex Pharmaceuticals Inc. Martin Marietta Materials Inc.
Valero Energy Corp. Equity Residential Roper Technologies Inc. Equifax Inc.
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X
Engagement with `Aiming for A` CoalitionCalls on companies to make a step in the way they disclose to investors their strategy on the risks
and opportunities posed by climate change.
1
Source: The Church of England, Press Release‘, Aiming for A’ climate change resolution overwhelmingly approved by Glencore shareholders, 19th of May 2016
What is `Aiming for A`? 'Aiming for A' was launched by CCLA in 2012 This £ 230 bn UK Initiave has been successfully proposing shareholder resolutions on Climate change. The 'A' within 'Aiming for A' refers to the best A-E CDP performance band. ‘ First success was the passing of shareholder resolutions on climate change at the BP and Shell AGMs.
Recent success New round of climate change resolutions aimed at the mining sector passed successfully in 2016 The following resolution was overwhelmingly approved by shareholders of Anglo American, Glencore and Rio Tinto
with respectivaly 96%, 98% and 99% of the votes.
"That in order to address our interest in the longer term success of the Company, given the recognised risks and opportunities associated with climate change, we as shareholders of the Company direct that routine annual reporting from 2017 includes further information about: ongoing operational emissions management; asset portfolio resilience to the International Energy Agency's (IEA's) scenarios; low-carbon energy research and development (R&D) and investment strategies; relevant strategic key performance indicators (KPIs) and executive incentives; and public policy positions relating to climate change.
With all the resolutions passing with the support of more than 75% of shareholders, the three companies are legally obliged to implement them.
Mining resolutions were co-filed by a much wider group of investors from three continents with assets of over $8 trillion, including some of the world's largest fund managers and pension funds, including ABP, PGGM, MN, CalPers, AP2, AP4, AP7, PKA and Ilmarinen PensionInsurance
X
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