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Environmental and climate risk

Climate change is significant and urgent investment risk. Academics and investment experts put the price of inaction in the trillions of dollars. To safeguard the investments of our members and the pensions of their beneficiaries, LAPFF’s main engagement objectives are for companies to align their business models with a 1.5 degrees scenario and to push for an orderly net-zero carbon transition. For our members to make informed investment decisions and understand the climate value at risk of investing in individual companies, they and their investment managers require companies to disclose data on emissions and set carbon targets. LAPFF therefore also considers that companies should report on their emissions and approach to carbon management as part of their business strategy. 

LAPFF is a member of the Ceres Investor Network on Climate Risk and Sustainability, is a participant in the Climate Action 100+ initiative and is in partnership with the Climate Majority Project. 

In December 2020, LAPFF joined the ‘Say on Climate’ initiative led by Sir Chris Hohn of the Children’s Investment Fund Foundation. This year, LAPFF started issuing voting advice for several resolutions further to the ‘Say on Climate’ initiative. LAPFF alerts were issued for Shell, BHP, and SSE. In the case of Royal Dutch Shell, the LAPFF alert recommended voting against the company’s climate change resolution and recommended a vote in favour of a shareholder resolution organised by Follow This, the Dutch action group. A reason for the LAPFF position was that Shell’s claim to be net zero was conditional on the progress of its customers. Since the Shell annual general meeting, a Dutch court has held a similar view. 

Emissions from road transport are a significant contributor to economic and investment risk. As the Committee on Climate Change has noted, surface transport contributes a quarter of UK emissions. This level of emissions is more than industry or buildings and should thus be a main focus of policy intervention. The forum has, over the past few years, been engaging some of the world’s largest carmakers about their emissions and fuel efficiency standards and targets. The forum considers that carmakers not focused on emission reductions risk being left behind as the price of electric vehicles (EVs) fall, consumer preferences change, and as government regulation becomes tighter. 

This year the forum engaged with BMW, Volkswagen, and General Motors about their approach to achieving net zero. All the companies have set out their approaches to reducing emissions, including the use of hybrid vehicles and increasing production of electric vehicles. Sales of EVs have increased rapidly but remain a small proportion of production numbers. Increased regulatory activity is set to change this trajectory, and the focus of discussions was around targets for being net zero in operations and cars sold as well as capital expenditure to ensure these targets can be met.