Engagement in action

Explore the three ways we are developing an understanding of Environmental, Social and Governance (ESG) challenges for companies to drive positive change.

Sustainable investing 11 Apr 2022 10 min read

Case studies

  1. ENI improves transparency on climate change
  2. Cadence Design Systems commitment to equal pay
  3. ABB to include ESG targets in remuneration
 

Environmental pillar

ENI

Case study result - Improved transparency on climate change plans and objectives

ESG topics addressed

  • Strategy and Business Model
  • Capital Management
  • Transparency and Disclosure
  • Environmental Management and Climate Change

Sector

Energy, Integrated Oil & Gas

Issue

  • We have been engaging with the Company through the Climate Action 100+ collaborative investor group.
  • Dialogue with management focused on the Company’s decarbonization strategy, its capital expenditure plans, and greenhouse gas emissions reduction targets.

Action

  • We met with the Company to discuss its stance on an advisory Say-on-Climate allowing shareholders to indicate support for the company’s transition plans, as well as to discuss how the Company aligns its accounting assumptions and conclusions with a net zero pathway.
  • At the AGM in May 2021, we presented a statement and questions to the Board requesting a clearer alignment of plans, capital allocation, and accounting with the goals of the Paris Agreement.

Outcome

  • The Company is one of the more advanced in its sector on climate transition and this is confirmed by our own assessment as well as the work of the Transition Pathway Initiative.
  • In recent engagement meetings the Company has provided additional background on how it connects its strategic objectives with capital allocation.
  • We continue to engage to encourage further demonstration this in public disclosures.
 

Social Pillar

Cadence Design Systems, Inc.

Case study result - Commitment on reviewing ethnicity and equal pay

ESG topics addressed

  • Human Capital Management
  • Labour Standards
  • Diversity

Sector

Information Technology

Issue

  • The Company has indicated that human capital and diversity are at the top of their ESG agenda.
  • One quarter of the Board comprises female directors, and the company provides some disclosure on gender diversity.
  • However, the Company does not provide any disclosure on their approach to ethnic diversity. This is increasingly at odds with moves towards such disclosure among US companies.

Action

  • We engaged with the Company encouraging better ESG disclosure, including an ESG materiality assessment and diversity data in line with the Equal Employment Opportunity (EEO) survey.

Outcome

  • The Company confirmed that they will publish more granular data on workforce ethnicity in the coming year.
  • They also added that the Board is focused on pay fairness, measuring its progress based on ‘equal-pay for equal-role’.
 

Governance Pillar

ABB

Case study result - ESG targets included in remuneration

ESG topics addressed

  • Corporate Governance
  • Remuneration
  • Environmental Management and Climate Change

Sector

Industrials

Issue

  • We engaged with the Company on the topic of executive remuneration to address the lack of ambitious ESG targets in the compensation framework.
  • Given the significant opportunities that the Company enjoys in the transition to a low-carbon economy, we saw ESG compensation targets as a potential key driver of company value.

Action

  • We discussed the inclusion of ESG targets into the compensation framework with Investor Relations.
  • We suggested the inclusion of such targets in the Long Term Incentive Plan (LTIP) - with a significant weight - reflecting the strategic priority of the company to reduce emissions.
  • We mentioned that targets should be based on the implementation pathway for greenhouse gas reduction, setting interim targets on the way to the long-term 2030 target.
  • The Company was receptive to feedback, yet mentioned they received contrasting inputs on this point from a number of investors.
  • The Company also mentioned that ESG performance is ultimately reflected into the Total Shareholder Return (TSR), which determines 50% of the LTIP, and that ESG targets were already included in the annual bonus.

Outcome

  • In response to our engagement efforts, as well as feedback received from other large shareholders, the Company decided to immediately include ESG targets in the LTIP, weighing 20% of the overall grant.
  • The targets will initially be set for the 2022-24 performance period, and they will be based on reduction of Scope 1 & 2 emissions.
  • We consider this outcome to be clearly positive, as investor dialogue was key in encouraging the Company to move quickly in the right direction: reduction of greenhouse gas emissions is a key opportunity for the Company, and a significant ESG target in the LTIP will push the company to capitalize on it.

Information contained herein is for informational purposes only and does not constitute investment advice or a recommendation to invest in any strategy or securities nor does it take into account the particular investment objectives, financial situations, or needs of any individual prospective investor. Investors should seek professional investment and tax advice.

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