Nest claims firms have ‘not done enough’ on climate to remain shareholders, in move prompted by UBS Asset Management’s decision to eject firms from ‘climate aware’ fund

Government-backed pensions scheme Nest has divested from a string of carbon-intensive fossil fuel companies, including US oil major ExxonMobil and Canada’s Imperial Oil, citing concerns over their failure to adequately address climate impacts.

Announcing the move this morning, Nest said the five companies targeted by the action – which also include Korea Electric Power Corp, US exploration firm Marathon Oil and Hong Kong electric utility Power Assets – would not return to its portfolio until they demonstrated “clear progress in preparing for the low carbon economy”.

Nest’s share ownership in the five targeted firms amounted to around £40m as of June 2021.

The workplace pensions provider said it the divestment had been prompted by UBS Asset Management’s decision to remove holdings in the five energy companies from the ‘Climate Aware’ funds it manages for clients, including one fund it manages for Nest.

Katharina Lindmeier, senior responsible investment manager at Nest, said businesses needed to take immediate action to tackle their climate change impacts to ensure they remained profitable and successful in the future.

“At Nest we aim to work with companies to encourage sustainable business decisions but will draw the line somewhere,” she said. “The five companies being excluded have not done enough to convince us that we should remain shareholders.”

UBS Asset Management’s decision to dump the emissions-intensive energy firms comes as the investor wraps up a three-year climate engagement programme with oil and gas companies in its portfolio. The process saw 60 per cent of targeted companies take action to step up their climate performance, according to the Swiss asset manager. It also said it had applied the exclusions to its actively managed equity and fixed income sustainability funds.

“Our three-year engagement programme provided companies with time to understand our concerns and act on them,” said Francis Condon, head of thematic engagement and collaboration at UBS Asset Management. “We have seen positive progress from most companies in the programme on their climate strategy and transition to a lower carbon economy. However, where we have not seen tangible progress, we are taking action.”

Moreover, UBS Asset Management also today revealed it has extended its climate engagement programme to other sectors that viewed as highly exposed to climate change risks and opportunities, including automobiles, chemicals, metals and mining, and others. It said it was targeting 46 companies in the new push.

Meanwhile Nest, which represents a third of the UK’s workforce, has also today unveiled a new 2025 climate goal for its portfolio which will see it target a 30 per cent reduction in emissions across its public equities and fixed income assets against a 2019 baseline.

“The new short-term climate target we’re announcing today should demonstrate not only our commitment on becoming net zero, but also that we’re not hanging around,” Lindmeier said. “We want to be on the front foot for such an important issue like climate change to achieve better risk-adjusted returns for our members.”

In related investment news, meanwhile, UK insurance giant Aviva today revealed it has invested in the Clean Growth Fund, the venture capital fund focused on early-stage clean technology ventures established with cornerstone funding from government in 2020.

Aviva has not disclosed the investment sum, but confirmed it forms part of its new commitment announced today to funnel £50m into venture capital funds focused on emerging technologies that support a sustainable future.

Aviva’s move to support the Clean Growth Fund was welcomed by Minister for Business, Energy and Corporate Responsibility Lord Callanan,  who said it demonstrated how private investment would put the UK at the forefront of ‘green’ innovation.

“Private sector investment into green technologies will be vital to the UK’s green industrial revolution and builds on government’s backing of £20m funding from the launch of the Clean Growth Fund,” he said.

The Clean Growth Fund closes for investment by the end of March 2022. Smart charging technology company Indra, flexibility services provider Piclo, low cost zero emission boiler firm Tepeo, biosurfactant company Holiferm and artificial intelligence company Carbon Re are among the firms to have already snapped up backing from the Fund.

Beverley Gower-Jones, managing partner of the Clean Growth Fund, said Aviva’s investment in the Fund was a “strong and welcome strategic move” coming so soon after the COP26 Climate Summit.

“Aviva understands the importance of innovation in turning the dial towards a cleaner, greener economy,” she said. “There were many pledges made at COP26 by governments and the private sector. Now is the time to turn these pledges into action.”

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