1.5 Degree Transition Challenge - Liontrust Engagement Update 11.21 - Flipbook - Page 5
Key findings
• Around a quarter of the companies with which we have engaged
have absolute decarbonisation targets consistent with one and a
half degrees and a further 9% have committed to 2 degrees, which
means a third are aligned with the Paris Agreement. The remaining
two-thirds do not, at present, have absolute reduction targets in
line with 1.5 degrees. This is moving quickly, however, with many
demonstrating positive momentum on decarbonisation. Very few
companies we spoke to do not see this as relevant to their business.
• Disclosure is inconsistent. It has been challenging to analyse
exactly what targets are in place on a company-by-company basis
beyond a simple ‘net zero’ by a suitably distant date in the future
when most decision-makers in the business will have long retired.
A further hurdle has been to identify and meet appropriate people
for discussions on strategy to decarbonise and the opportunities
and challenges presented by this. Communication on climate
change, especially decarbonisation targets, can be tough to
decipher. Initially, there appeared to be a competition between the
more proactive companies about how soon they would become
carbon neutral. Aiming to achieve this by 2050, 2040 or even
2035 appeared to be a way of showing leadership, which it
does, albeit only partially. These statements on their own tell
us little; how companies plan to achieve carbon neutral is key.
• Risks of higher-carbon products being displaced by lowercarbon alternatives are rising. Where there are lower-carbon
alternatives to a particular product or service, the potential for
disruption and replacement is high and the risks to that investment
could be material. We draw a contrast between companies like
Welsh Water or Waste Connections, with significant emissions
from performing their critical role treating water and waste, and
those selling fossil fuels, which is increasingly substitutable by a
lower-carbon alternative (as petrol and diesel are displaced by
electric vehicles). We see the risk as lower for the former and are
therefore invested in some of those businesses but none of the latter.
• Fast-growing companies face a challenge. The biggest
challenge in achieving absolute emission reductions is in fastgrowing companies, where carbon intensity targets have to be
significantly higher than how much the business is growing for
there to be any fall in absolute emissions. For example, if a
business is growing 5% a year and the target to reduce carbon
intensity (per unit of sales) is 2%, absolute emissions are still rising
by 3% annually. Helios Towers, for example, is a business rolling
out mobile communication towers, especially in underserved
emerging markets. This is very positive and can help deliver
lower-carbon services to these customers. While the growth rate
of the business is expected to be high, there are ways to increase
resource efficiency by having more than one mobile carrier using
its network infrastructure, which can reduce emissions by around
40%. There are opportunities to use renewables to power some
of these towers but this is not possible for all of Helios’s assets
all of the time. The company remains proactive in trying to solve
this challenge.
• Third-party models are inconsistent. Measuring which global
average temperature rise a portfolio is aligned to using different
third-party models gives a broad range of results due to the
different methodologies and assumptions. Many, in our view, do
not give enough credit for the products and services needed to
reduce emissions and simply look at the rate of decarbonisation
within a company over the next decade. We interpret the results
of these models with caution and do not currently disclose a
single number for temperature alignment for our portfolios.
• Offsets are not currently part of the solution. We want companies
to concentrate on reducing absolute emissions before offsetting
emissions at any large scale. Offsetting can be a distraction
and there are not enough legitimate carbon offsets available at
present. Some notable exceptions are businesses within the EU
Emissions Trading Scheme, which have to comply with carbon
emission limits, or where there are few viable alternatives and
the level of emissions is relatively small (such as indirect emissions
from business travel flights).
Liontrust: 1.5 degree Transition Challenge – engagement update - 5
