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Environmental issues were already high on the agenda before the pandemic struck, but the damage caused by Covid-19 amplified awareness of social issues. Governance has been critical for many years, but varying lockdown measures challenged the capabilities of boards and management teams to navigate extraordinary circumstances.
Throughout this period, Fidelity International continued to engage with our investee companies on a range of ESG issues in even greater depth than previously. In this report, we highlight examples of our diverse and increasingly sophisticated engagements, from a campaign to scrutinise and limit executive compensation during Covid to our efforts to halt modern slavery.
Engagements that bring real change
Over time, the benefits of our long-term commitment to sustainability are becoming clearer. We are able to effect real change (such as ending coal financing) and our outstanding analyst team can more quickly identify and address major issues across industries and geographies, such as the seafarers’ crisis and diversity in global financials.
While 1:1 engagements with companies can be very effective, there is also tremendous power in global investors collaborating to help companies focus on what they need to do. Our participation in the collective Climate Action 100+ initiative is a good example of this and has brought significant benefits to investors, companies, and society as a whole.
However, the bar is being raised on sustainability for everyone. Investee companies and asset managers alike are growing in our understanding of, and expectations for, the characteristics that make up a sustainable society and sustainable markets.
Our engagements on climate, for example, have become more detailed and our expectations are higher. At a minimum, we want to see that a company has a stated policy on climate change. Is it aligned with the UN Paris Agreement? What is the company’s approach to net zero, and what are their disclosures on emissions, including Scope 3? Does the board have discussion and oversight of climate change?
Trends around climate and employee welfare will only accelerate
Looking ahead, we believe that trends around climate and employee welfare will only accelerate. When identifying our key themes to engage on in 2021, we focussed on building back greener, stronger and more inclusively from the pandemic in anticipation of what the next decade may bring. This means pushing companies to decarbonise as quickly and as sustainably as they can. It means expecting companies to fulfil meaningful diversity goals and to ensure human rights are protected for all workers. Finally, we also believe companies should consider digital ethics and inclusion as critical sustainability issues.