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For asset managers, actions must speak louder than words on climate change

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Stuart DalheimShareholder Engagement Manager, Calvert Research and Management

      Washington - The UN Climate Action Summit 2019 and Climate Week NYC began on September 23. The Summit will bring together governments, the private sector, civil society, local authorities and other international organizations to develop ambitious solutions in six areas: a global transition to renewable energy; sustainable and resilient infrastructures and cities; sustainable agriculture and management of forests and oceans; resilience and adaptation to climate impacts; and alignment of public and private finance with a net zero economy. Investors are highlighting the importance of curbing greenhouse gas emissions and accelerating the transition to a lower carbon economy.

      The action started even before Climate Week began. On Sept. 16, 200 major investors with $6.5 trillion in assets under management urged 46 of the largest publicly traded U.S. corporations to align their climate lobbying with the Paris Climate Agreement. On Sept. 19, 515 investors with more than $35 trillion issued the largest ever Global Investor Statement to Governments on Climate Change, demanding governments step up ambition to tackle climate change and enact strong policies by 2020 to achieve the goals of the Paris Agreement.1

      The energy transition to a low-carbon future is underway, but for it to happen quickly enough to avoid dangerous climate change impacts, capital must be allocated to low-carbon energy sources. Asset managers also must engage with traditional energy firms to better understand their ability to succeed in the low-carbon future and to encourage their efforts to reduce emissions themselves.

      Shareholder engagement and proxy voting are key to this. Some of the key actions investors are asking companies to take include:

      • Describe the connections between the transition to a low-carbon economy and their business objectives and strategies.
      • Establish objectives and plans of action that will enable success, including objectives to reduce greenhouse gas emissions
      • Disclose their energy transition risks and opportunities, and how their business strategies and actions are positioning them for success

      Actions must match rhetoric

      While more asset managers are talking a good game about combating climate change, their actions haven't always matched their words.

      Shareholder proposals filed by Calvert and other investors have called on companies to take action, and it is critical that investors vote their proxies to facilitate progress by companies. Unfortunately, a new report from the group Majority Action2 -- a non-profit organization dedicated to empowering shareholders to hold corporations and their leadership accountable to high standards of long-term value creation, corporate governance, and social responsibility -- highlights that some of the largest asset managers are routinely voting against shareholder proposals on climate change filed at energy companies. It examined 41 resolutions that it considered to be "climate-critical" from 2019. Calvert was able to vote in 38 of those - the other three involved companies not among our holdings - and voted in favor of all 38.

      Of particular note, according to the report, is that at least 16 climate change proposals would have received a majority of votes if two large asset managers had voted in favor of them. Instead, the firms sided with management and the efforts failed. Until these types of large investors make corporate boards accountable, it will be difficult to make sufficient progress.

      Bottom line: Public statements are helpful, but actually voting proxies in favor of climate proposals sends a critical message that corporate leadership needs to hear.