A forward step - Legacy of Copenhagen emerges
Shifting - Shareholder Resolutions
Carbon Counts - transparency and disclosure
Jupiter welcomes launch of the Carbon Disclosure Project's water footprint survey
Syngenta - sustainability and food security
Next assures us of strong supply chain management
A forward step - Legacy of Copenhagen emerges
Despite some disappointment at the outcome of the Copenhagen Climate Conference, we take the view that it's less a case of 'what might have been' and more a case of 'what will still be'.
As expected, the 'Copenhagen Accord' crystallised the policy momentum seen at a national level in the months leading up to the conference. We believe the most important initiatives have been taking place at this scale.
Indeed by the time the 'soft' deadline for participants to submit self-determined emissions targets passed on 31 January, 55 nations - accounting for 78 per cent of global emissions from energy use - had made pledges to cut and limit greenhouse gas emissions by 2020 according to the UN.
The Accord therefore represents a milestone in itself, crucially forming the basis for a more comprehensive international climate deal that will for the first time include emission commitments from both the US and China, as well as key developing nations such as Brazil, India and South Africa. This improves the chances of achieving domestic climate legislation in the US, which in turn should pave the way for legally-defined progress at an international level.
These are significant advances in themselves, and while much remains to be done, we expect decisive improvements to the negotiation process on the back of these developments.
Importantly, the Accord acknowledges the Intergovernmental Panel on Climate Change recommendation that global temperatures should not rise by more than 2 degrees Celsius. It also agrees that deep global emissions cuts are ultimately required. Although this hasn't translated into legally binding targets, this leaves room for more ambitious targets beyond those committed at the first stage of the Accord.
From an investor's perspective, the message remains clear as national and international policies continue at pace towards decarbonising the global economy.
Shifting Sands - Shareholder resolutions
Oil sands projects face significant environmental challenges, such as carbon regulation, the high resource and energy intensity of oil sands extraction and refining processes, the handling of toxic water produced as a by-product of oil sands mining (water tailing ponds), and reclamation of mined land. As a consequence, this has been an area of focus in our discussions with a number of oil companies over recent years.
More recently, shareholder resolutions have been filed ahead of the 2010 AGM's of both Shell and BP with respect to the companies' involvement in the Alberta oil sands. The investors who have co-filed these resolutions are concerned that oil sands production has significant economic, environmental and social risks associated with its development, which could lead to escalating costs in the future.
Our engagement with Shell
November last year, we went on a site visit to the Alberta oil sands in which provided an opportunity to visit Shell's Muskey River Mine. Shell provided information on its assumptions around carbon regulation and environmental risks and also highlighted a wide range of measures that it has introduced to improve sustainability performance, ranging from improved energy efficiency to employee safety. Carbon Capture and Storage (CCS) is likely to play a key role in reducing carbon emissions. Shell has recently been awarded a significant grant by the Albertan government to build a CCS plant at one of its upgraders in Alberta, where the bitumen extracted from oil sands is upgraded and refined. We have also discussed Shell's involvement in the oil sands in numerous meetings with the Chairman and Chief Executive. Discussions with Shell on this issue are ongoing, with further meetings planned.
Our engagement with BP
While oil sands represent a smaller proportion of BP's total reserves than Shell, we have attended a round table discussion with the company's CEO of Exploration and Production, to discuss its oil sands strategy in more detail. We were keen to better understand the company's assumptions relating to the price of oil and carbon and also cost projections for mitigating technologies such as CCS. We would also like to see the company improve communication and transparency with stakeholders on this issue. We have subsequently met with the Finance Director, and separately the company secretary and the President & CEO BP Canada. Our decision as to how to vote will not be made until after we have gone to press.
Carbon Counts - transparency and disclosure
An important message coming out of the Copenhagen Summit on Climate Change was the need for open disclosure and transparency of carbon emissions data. One of the most extensive initiatives to advocate reporting on carbon emissions has been the Carbon Disclosure Project (CDP), which now collects and discloses data from around 2,500 organizations across some 60 countries around the world.
As a founding signatory to this project, we have worked with companies over a number of years to encourage better reporting and consistency in data. We also regularly contact companies held in our funds which do not respond to the CDP annual survey. For example, in January 2009 we wrote to Kier Group to request information on its decision not to complete the CDP 2008 survey. Kier Group then fully participated in the 2009 survey and a meeting with the Director of Communications revealed the role that our letter had played in encouraging senior management to participate in this initiative. We also discussed the progress that Kier is now making with carbon management and the potential savings that this will allow the group to make.
Last year we also became involved with investor collaboration in association with the United National Principles for Responsible Investment and the CDP, which targets the largest global 500 companies operating in high impact sectors that did not fully respond to the 2009 survey. The group of 31 institutional investors represents approximately USD$3.56 trillion of assets under management. Jupiter will keep investors informed of the outcome of this engagement through our next Sustainability in the Spotlight.
Despite the progress made in relation to carbon disclosure, recent research undertaken by PricewaterhouseCoopers (PwC) on Sustainability Reporting in the FTSE 100 and 250 for their 2009 Building Public Trust Awards, shows that the quality of sustainability reporting in Annual Reports still has some way to go. PwC's research identified that some 139 companies (40%) described in their Annual Report how their sustainability strategy is integrated into the corporate strategy. PwC then looked at these companies in greater detail, including their Sustainability Reports, and found that of these companies, 128 published sustainability focused Key Performance Indicators, 44 companies highlighted sustainability risks and 18 companies highlighted sustainability opportunities.
Members of the Jupiter Green & SRI Research Team have also been working with the Accounting for Sustainability project, which is bringing organisations together to develop practical tools to enable environmental and social performance to be better connected with strategy and financial performance.
Jupiter welcomes launch of the Carbon Disclosure Project's water footprint survey
Following the success of the Carbon Disclosure Project (CDP), we look forward to viewing the outcomes of the inaugural CDP Global Water Disclosure Project, to which Jupiter is again a founding signatory. Consistent with the format of its carbon surveys, the CDP will this month send a questionnaire on behalf of institutional investors to around 300 of the world's largest corporations operating in water-intensive sectors such as chemicals, utilities and food & beverages, with responses available by the end of the year. The initiative comes as research from the World Bank and McKinsey estimates that global water requirements will exceed reliable supply by 40% in 2030.
Water-use management and disclosure remains a key focus for Jupiter's engagement activity. Recent dialogue with companies such as SAB Miller and PepsiCo has demonstrated the medium- and long-term value to those companies deemed as the most progressive in this area. While typically perceived as 'tomorrow's problem', we believe that strategic and competitive advantages are being gained today as a result of companies' efforts to research and reduce their water footprints, both in-house and throughout the wider value chain.
Below are some details of company specific meetings we have had, which have focused on material sustainability issues, including water use and carbon reporting.
Syngenta - sustainability and food security
As climate change and food security issues rise up the political agenda, modern technology and efficient farming techniques will play an important role in helping to meet global food demand. Many environmental groups, however, contest whether intensive farming techniques really provide sustainable solutions. Syngenta, a crop-science company, is widely considered to be the sector leader on sustainability issues and has increasingly used its strong understanding of social and environmental trends to promote the benefits of modern and scientific farming practices.
Last December we met with Syngenta's Head of Corporate Responsibility and Investor Relations to discuss how the company is contributing to the debate and to learn about the crop solutions it is developing for more extreme climatic conditions. For example, Syngenta's expertise in Marker Assisted Techniques creates improved crop varieties by copying desirable properties across to plants of the same species to increase yields, disease resistance or stress tolerance. Syngenta was part of McKinsey and Company's 2030 Water Resources Group, contributing to the recent report 'Charting our Water Future' with their work on drought and flood solutions.
Syngenta pointed to the recognition it has received from WWF for its work on such techniques and how environmental campaign groups are starting to realise the potential of these applications to address other environmental challenges.
We were also particularly interested to hear the company's views on climate change ahead of Copenhagen. Syngenta is keen for agriculture to be included as part of a global deal but following the unsatisfactory outcome from the Copenhagen summit, it seems that the company must now continue to lobby policy makers to ensure agriculture is on the table in future climate negotiations.
Next assures us of strong supply chain management
The complex nature of global supply chains continues to present reputational risks for retailers. Good supply chain policies and controls not only facilitate more efficient sourcing but can also mitigate exposure to human rights risks, such as excessive working hours, poor compensation, child labour and rights to freedom of association.
A meeting with Next enabled Jupiter's UK fund managers and our sustainability analysts to get an insight into how a large UK multi-channel retailer is managing supply chain risks. We found Next to have strong supply chain management systems in place, which we believe highlights the high quality leadership in place at the company.
Internal auditing teams both in Asia and the UK work closely with suppliers to ensure compliance with Next's Code of Practice and ethical standards. Its auditors monitor performance regularly, and the company works with suppliers to improve standards although continued poor performance can result in contracts with suppliers being terminated. The company has gone as far as blacklisting some countries where it believes basic labour rights are not respected.
Next has also identified environmental risks in its supply chain. We discussed access to water for water intensive processes such as cotton production and how Next is managing greenhouse gas emissions from manufacturing processes. Environmental and finance specialists within the company are working together to ensure the company will be ready to comply with the UK's Carbon Reduction Commitment when it is introduced in 2011.