Future stewardship efforts should focus on capital discipline, says Simpson

Future stewardship efforts should focus around capital allocation and discipline as investors look to implement their pledges and plans, according to Anne Simpson, global head of sustainability at Franklin Templeton and inaugural chair of Climate Action 100+.

Simpson, speaking in her capacity as member of the engagement group’s steering committee, told Responsible Investor that the emphasis on capital allocation looked set to expand as investors narrow their stewardship focus.

CA100+ has assessed its target companies against a series of indicators on commitments and methodologies to align their capital expenditures with the Paris Agreement since 2021, but firms have generally performed poorly on the examinations.

The most recent benchmark, in October last year, found that only Italy’s Enel had met all the requirements. Fourteen firms, mostly in Europe, partially met them.

“The emphasis on capital allocation, capital discipline and the financial performance is going to expand. We’ve made a start by including CapEx alignment [in CA100+],” Simpson said. “That brings auditors, accountants and audit committees into the mix big time, and that’s new. That has got to be the focus in the next stage.”

She added that investors also needed to look at sustainability data in private markets and the Just Transition as they carry out their engagements.

Private markets data is a big piece of unfinished business for the transition, she said. “As companies are spinning off assets rather than transitioning them, emissions are rising and it’s not showing up in the ownership of financed emissions in public markets.”

Simpson also stressed the importance of engaging on the Just Transition. “Taking care of the communities who have given their working lives over two centuries, the mining communities, the communities affected by and dependent on fossil fuels right now, that is a big area of work for us all to get stuck in on.”

As CA100+ enters its second phase, there has been a switch in focus to ensuring target firms put in place the commitments secured during the first. Simpson said it was important not to be distracted by global economic challenges.

“Phase one was necessary and we learned a lot in the process. Phase two has got to pick up the necessary actions with all these headwinds [such as the war in Ukraine]. We have to tack into these headwinds, not use them to hold us up or blow us off course.”

Having secured commitments, “we’ve got to now do the follow-through”, she said. “At the beginning when we were looking at a name, it wasn’t Climate Hopeful. Action means just that.”

Simpson acknowledged that Phase 2 will necessarily be more complex, as investors and companies dig down into the complexities of sector transitions and intersectoral interdependencies.

Asked how far the commitments made by CA100+’s target companies could be attributed to engagement by its investor members, Simpson said the question was complex.

“I don’t ever want to take away from the credit of the companies who are responding, not just to investors but to other forces at work,” she said. “The ‘we’ here is the big ‘we’. It’s the Paris Agreement, it’s civil society, it’s science – and in the ‘we’, finance has a role.

“This is a complex interdependent set of factors so the ‘we’ is the community on planet earth. Finance plays a role.”