The impact and tragic results of climate change are starting to dominate the news. The actions taken by governments, companies and individuals in the next decade will be crucial if we are to limit the rise in global temperatures. The option of doing nothing has now passed.
Ruffer, like most investment managers today, sees environmental, social and governance (ESG) considerations increasingly contributing to the risk and opportunity of any investment. We integrate ESG factors into every aspect of our investment process.
However, we believe that engagement rather than exclusion is the key to delivering both change for the good and better returns for our clients. Blanket, unthinking exclusion of environmentally “difficult” companies leaves them free to continue poor practices and does nothing to improve global environmental outcomes.
Take the example of ArcelorMittal, Europe’s largest steel producer. Steel production is carbon intensive. It uses metallurgical coal to reduce the iron ore into iron, and subsequently to steel. Some funds just exclude investment in such companies – but you need steel to make wind turbines and other renewable technologies. The infrastructure needed to transition to a low carbon economy will need a lot of steel. And steel can be reused and recycled.
We have engaged with ArcelorMittal since early 2019, co-leading the global Climate Action 100+ team in talks with the management. At the AGM in early 2019 and at private meetings, we persuaded the company to set ambitious targets to reduce its greenhouse gas emissions.
The result of this engagement? ArcelorMittal committed in December 2019 to reduce its emissions in Europe by 30% by 2030 and be net-zero by 2050. In September 2020, the company committed to be net-zero across its global operations by 2050. And in July 2021 the company announced it would make its Sestao plant in Spain the world’s first full-scale, zero-carbonemissions steel plant in 2025.
Our experience shows that effective engagement is a powerful tool in delivering better environmental outcomes. Meanwhile, holding shares in such companies through the transition from discounted “untouchable” to “ESG darling” can be beneficial to investors too.
Hermione Davies is an investment director
Ruffer LLP is a limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct Authority. The information contained in this article does not constitute investment advice or research and should not be used as the basis of any investment decision.