We supported BHP’s eventual decision to halt the sale and instead to wind down the mine to closure in 2030 - far sooner than if it had been sold on to a private operator. The temporary boost to BHP’s carbon tally will cut real world emissions over the long term.
But it’s not just sustainability at stake: expanding exclusions for the sake of making portfolios green on paper can make for a poor investment strategy; it can narrow your investment universe and increase concentration risk. Divesting may nominally reduce exposures to certain ESG factors but also means investors miss out on the benefits of company improvements. Investors who take the time to understand where companies are heading have more opportunities to position themselves for future alpha creation.
Rather than excluding companies as a first port of call, we believe that divestment is better used as leverage to achieve change and escalate engagements which are not producing the desired outcomes.
From top to bottom
As well as speaking to individual companies, investors can use their influence at a higher level to engage on broader themes.
Take deforestation. Forests are the most effective carbon sinks, absorbing 1/3rd of the carbon dioxide released from the burning of fossil fuels1. To have any hope of achieving net-zero goals, investors urgently need to address the issue of unrestrained land clearing. Given that farming commodities such as palm oil, soy, beef, and timber is the primary driver of deforestation, engagement must begin on a thematic level with those industries.
Engagement pays
Capital buys influence. That influence, if used responsibly by investors, can improve the lot of all stakeholders over the long term. A sustainable business is also a more prosperous business; disinvesting undermines our fiduciary duty to deliver positive returns to clients and is the equivalent of brushing a ‘bad’ company under the ESG rug. It’s time to clean up properly.
Find out more about Sustainable Investing at Fidelity
This is by Jenn-Hui Tan, Global Head of Stewardship & Sustainable Investing, Fidelity International.
1 Fidelity International, https://www.fidelityinternational.com/
Important information
This content is for investment professionals only and should not be relied upon by private investors.
The value of investments can go down as well as up and clients may not get back the amount invested. Investors should note that the views expressed may no longer be current and may have already been acted upon. A focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0423/381524/SSO/NA
