Vicki Bakhshi, Governance and Sustainable Investment Team
We invest in solutions through our Energy transition investment theme, with Umicore being one example. This Belgian-listed materials technology company has been one of the three global leaders in emission control catalysts for internal combustion engines. It is now strategically repositioning itself at the forefront of energy transition – producing materials for rechargeable batteries used in electric vehicles.
Umicore has invested in capacity and taken a dominant market position in producing materials (e.g. cathodes) to meet the anticipated rapid acceleration in electric vehicle battery demand.
The company also is highly conscious of the strain that the global ramp-up in battery production is placing on scarce materials, particularly lithium, and has developed recycling technologies in anticipation of an increased demand to address this issue. Furthermore, Umicore has created a dedicated Sustainable Procurement Framework for Cobalt covering its entire supply chain and is a member of the REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) Consortium on behalf of the cobalt and lithium industries.
With clean-tech innovation at the core of its strategy, Umicore is likely to be a key beneficiary from the transition to a lowcarbon economy.
We have now tracked and published our strategy’s carbon footprint for three years. We are conscious that carbon footprinting does not, by itself, provide a measure of climate risk – due to, amongst other issues, the fact that it only measures direct emissions rather than those arising from the use of a company’s products; the backward-looking nature of the data; and gaps in disclosure.
However, we do find it a useful tool to identify potential outliers, and ensure that our analysis fully incorporates any risks associated with higher-emitting companies.
Our portfolio-weighted carbon footprint is 43% below that of the strategy’s benchmark index, the MSCI World index. In 2017 the strategy’s footprint fell by 14%. This was mainly due to the sale of two companies which were in relatively high-emission sectors: gas distributor Spectra Energy, which we sold following the Enbridge acquisition; and materials business Toray Industries.
The largest contributors to the strategy footprint now are water and waste company Suez, and chemicals firm Praxair. We have assessed the climate strategies of both. Although they are in high-emissions sectors, they both have sound emissions management systems, and are positioning themselves strategically as solution providers.
A key part of our investment rationale for Praxair is the range of products it manufactures which are targeted at enabling energy efficiency improvements. The company calculates that whilst its direct carbon footprint is high, at 24 million MT CO2e, it enables 68 million MT CO2e of greenhouse gas savings by its customers, giving it a positive net carbon balance if these Scope 3 effects are included.
Going forward we would like to see companies in our strategy adopt reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures, and will press for this through our engagement.