Fidelity to increasingly vote in line with climate and biodiversity priorities

FIDELITY Investments has increasingly voted against the management of its investee companies on at least one item, as they align their voting policy with sustainability priorities.

It voted against companies’ management on at least one item at 45 per cent of annual general meetings in 2022, which is an increase from 38 per cent in 2021, said Paul Milon, Fidelity’s director of sustainable investing.

The asset manager has also started actively engaging companies with high deforestation impact, with the intention to vote against those that do not take actions according to its biodiversity expectations. The move comes as it begins integrating the emerging investing theme in its overall sustainability approach, said Milon, who was speaking at a webinar where the firm shared its outlook for environmental, social and governance (ESG) investing for 2023.

Already, Fidelity has integrated climate considerations, as well as board gender diversity expectations in its voting policy. For example, it expects at least 30 per cent of a companies’ board to be women in most developed markets, and 15 per cent in markets where gender diversity is still an emerging theme.

For the whole of 2022, it had over 2,000 engagements with more than 1,500 companies on climate, nature, social disparities and governance issues, with more than 33 per cent of these engagements with Asia-Pacific companies, said Milon.

ESG regulation

Fidelity expects 2023 to be a “watershed year” for ESG regulations, as it is likely to have more bite than previous years and will start influencing the reporting and disclosure behaviour of companies and investors, said Gabriel Wilson-Otto, Fidelity’s head of sustainable investing strategy.

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Although Asia has often been criticised for being a laggard in the ESG space compared to other regions, Wilson-Otto said that the volume of new regulations and policies being formulated in Asia has been increasing at roughly the same rate as the rest of the world, although the pace of development is not consistent within the region itself.

And these developments in the regulatory space could have a potential impact in three areas.

With the focus of ESG regulation in Asia mostly on climate risk and prudential risk management, as well as the integration of reporting frameworks into companies’ behaviour and policies, investors would have a richer set of information to evaluate corporates’ ESG performance, in addition to requirements for them to produce such reports themselves. This could potentially result in greater transparency, said Wilson-Otto.

Another area of potential impact from these regulatory moves would be on the greenwashing risk of ESG products and activities. Minimum standards and labels are being developed to improve transparency and reduce the risk of mis-selling or misrepresentation of these products, he added.

The emergence of global data standards will also converge with how reporting standards are used.

With more concrete expectations and demands, there will be a framework through which a fund can be assessed on whether it is meeting those expectations, said Wilson-Otto.

“And so this year, I’m expecting to start seeing a bigger impact on classification of funds and the way that managers are responding to those markets, and where there are gaps, that could potentially open up to legal action as we’ve seen elsewhere in the world,” he said.

However, he added that it would not totally eliminate greenwashing concerns, as there are some aspects of ESG investing that are just simply value-driven.

While Wilson-Otto was hopeful there will be a convergence on how the baseline layer of data is measured, such as how a carbon dioxide footprint is calculated, there is much less progress on “the definition of terms such as green, sustainable, or even what a climate report should contain and where fiduciary duty ends, and where corporate responsibility or a social licence starts”.

“Depending on where you are in the world, they draw that line in very different places. And so from my perspective, I see those differences as being values-driven in a lot of different markets and from different cultures. So I have less hope that we’re going to get one baseline definition, although it would make everyone’s life much easier if we could,” said Wilson-Otto.

The risk for fund managers is therefore that someone could argue that a green fund is greenwashing if they fundamentally disagree with how the fund defines green.

The consolation, he said, was that regulators appear to be more focused on another type of greenwashing, which is where there is an inconsistency between the representation of a fund, its investment objective and how it’s managed.