Global asset manager Fidelity International has strengthened its climate investing policy to incorporate proprietary climate ratings as it aims to halve emissions from its investment portfolio by 2030 and phase out exposure to the thermal coal sector.
The asset manager said that the new policy is engagement-led and focuses on aligning its asset management strategy with a net-zero future.
Fidelity has pledged to reduce CO2 emissions across its portfolio by 50% by 2030. To reach this target, it will introduce proprietary climate ratings to assess net-zero alignment of investee companies.
Ratings will be used to set targets for its funds. In tandem with its enhanced voting practices, announced this summer to hold companies to minimum ESG standards, this new policy is intended to encourage companies to reduce their climate impacts.
“As a responsible investor, we must understand the carbon footprint of the portfolios we manage for our clients and work with the companies we invest in to reduce emissions in alignment with global net zero targets,” said Jenn-Hui Tan, global head of stewardship and sustainable investing at Fidelity International.
Climate ratings will be rolled out for all companies in Fidelity’s investment universe. Initially, the ratings will be used to identify engagement opportunities in high-impact sectors and to set interim targets for 2025 and beyond to ensure that funds that boast ESG characteristics are aligned with a net-zero journey.
Where unalignment is detected, but transition pathways are sound, Fidelity has said it will enhance engagement with management to influence progress.
“These ratings will ensure we focus our efforts on the biggest emissions reduction opportunities. Targeted engagement will be crucial in meeting our portfolio emission goals,” said Tan.
Further, Fidelity has committed to phasing out exposure to the thermal coal sector in OECD countries by 2030, and by 2040 globally.
According to the firm, this gradual exit will allow companies to demonstrate their ability to transition and be guided by both the climate ratings and engagement policy.
Fidelity has said it will look to divest from companies which show little progress in the next three years.
“Immediately exiting our exposure to more carbon-intensive companies will diminish the impact we can make through active engagement and is unlikely to make a difference to real world emissions nor will it address the energy needs of many countries today,” said Tan.
“While Fidelity remains committed to working with companies on their transition, we recognise that some activities and businesses are incompatible with a net-zero future. Divestment is a last resort, but it is the only outcome where companies are unable or unwilling to show progress.”
“In addition, as the pace of innovation and technological development increases, we will continue to review our targets making we sure we remain flexible and able to respond to significant developments in this space,” he added.
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