Engagement drives progress to ‘net-zero’

The £74.8bn asset and fiduciary management company enacted a climate policy last year with the aim of becoming a net-zero investor by 2050, with interim targets of aligning listed investments with Paris Agreement pathways by 2025 and non-listed investments by 2030.

Engaging with companies has been key to the pursuit of this policy.

Kempen carried out 116 engagements with companies on environmental, social and governance themes, 82 of which were for change carried out by its portfolio managers and sustainability and impact team.

There were an additional 209 engagements carried out with peers, including on Covid-related matters such as labour rights, worker safety and access to healthcare.

Direct engagements focused primarily on environmental and governance issues, making up 45 per cent and 37 per cent of the total respectively.

Eszter Vitorino, senior responsible investment adviser at Kempen, told Pensions Expert that setting clear expectations is vital for the company to assess whether its engagement policies are on track.

“We engage with our investee companies to have meaningful dialogues on change. The success of our approach is not measured only by the number of dialogues we have, but even more importantly the responsiveness of the company to our direct and collective requests,” she said. 

“The sustainable investing landscape is evolving: while climate is a hugely important issue, biodiversity and natural resource use are closely connected to it.

“Companies that are fit for the future also need to take into account — next to their overall business soundness and environmental issues — the most relevant social and governance issues, and report about them in a meaningful way,” Vitorino continued. 

“The scope of relevant engagement topics is shifting over time and this is also reflected in our approach.”

Kempen does make allowances for divestment and exclusion in a few areas, chiefly controversial weapons and tobacco, while it assesses “companies facing very severe controversies related to issues covered in the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights”, she explained. 

“We review our exclusion and avoidance lists every quarter and we also discuss with the investment teams the progress of the company engagements. Where the companies are not responsive to our change requests, we may choose to escalate the engagement and can ultimately consider divestments.

“This has happened in the past a few times, yet in principle we have a strong preference for maintaining a constructive dialogue with investee companies,” she added.

The company’s portfolios became less carbon intensive in 2020, according to its Stewardship and Sustainable Investment Report 2020. 

“As the coverage of the carbon footprint analysis of our assets grew to €34.2bn [£29.7bn] (2019: €27.3bn), the total financed carbon emissions stayed at the same level (2020 and 2019: 3.4m tonnes of CO2e [carbon dioxide equivalent]). The lower carbon intensity is reflected in the decrease of the two carbon footprint metrics, carbon emissions per €1m invested (2020: 100.1) and weighted average carbon intensity (2020: 148.2),” the report explained.

“Most of Kempen’s internally managed funds are less carbon intensive than their benchmark, indicating that the companies within these portfolios have a relatively lower carbon intensity compared with their industry peers.”

Narina Mnatsakanian, executive director impact and sustainable investment, said: “We are determined to leverage our influence on sustainability across the value chain, working with clients, managers and companies to help them achieve both financial returns and sustainable impacts.

“2020 was an important year for Kempen, as we were proactive on the implementation of the EU Sustainable Finance Regulation and initiated the rollout of [sustainable development goals] data for our funds.”