Context

NatWest Pension Trustee Limited (the Trustee) will collaborate with other investors when appropriate opportunities arise. However typically the Trustee works with EOS at Federated Hermes (EOS) and other clients of EOS to increase its awareness and where possible influence regulations in the markets in which it operates.

• EOS is working on behalf of pension funds and other large, institutional investors, so it has significant leverage – representing assets under advice of US$1.75 trillion as of 30 June 2021. The team’s skills, experience, languages, connections and cultural understanding equip them with the credibility to access and maintain constructive relationships with company boards. Through the services provided by EOS, the Trustee also collaborates with other investors where appropriate, including through Climate Action 100+ (CA100+) and the Institutional Investors Group on Climate Change (IIGCC).
• CA100+ is an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. 700 investors, responsible for over $68 trillion in assets under management, are engaging companies on improving climate change governance, cutting emissions and strengthening climate-related financial disclosures. The work of the initiative is coordinated by five regional investor networks: the Asia Investor Group on Climate Change (AIGCC), Ceres, IIGCC and Principles for Responsible Investment (PRI). It is supported by a global Steering Committee.

• IIGCC is the European membership body for investor collaboration on climate change and the voice of investors taking action for a prosperous, low carbon future. IIGCC has more than 375 members, mainly pension funds and asset managers, across 23 countries, with over €51 trillion in assets under management.

  IIGCC’s mission is to support and enable the investment community in driving significant and real progress by 2030 towards a net zero and resilient future. This will be achieved through capital allocation decisions, stewardship and successful engagement with companies, policy makers and fellow investors. IIGCC works to support and help define the public policies, investment practices and corporate behaviours that address the long-term risks and opportunities associated with climate change.

The Trustee’s policy is to participate in collaborative engagement where possible. There are no cases in which NatWest Group Pension Fund (the Fund) holds such a significant number of listed securities of an individual issuer that it might hold influence over that company’s board. This is true of most pension funds. Greater impact is achieved through the partnership with EOS and its other clients and by supporting initiatives such as CA100+. There are good examples of asset managers engaging with companies on behalf of many clients, particularly where invested in pooled funds. However, the Trustee is better able to apply its policies consistently across all its listed securities by working with EOS.

Activities & Outcomes

• Case Study: EOS engagement in collaboration with CA100+

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  Since 2019, EOS have been engaging with Anglo American Plc, on behalf of the Trustee, in collaboration with CA100+, and highlighted the need for the company to undertake a 1.5 degree scenario test. In response to the engagement, in 2020, the company stated it would undertake a disruptive 1.5 degree scenario test. While this was underway, CA100+ continued to engage with the company addressing topics such as capital allocation, Scope 3 goals and lobbying, and updates on thermal coal plans. It also continued to discuss further the company’s plan to undertake the 1.5 degree scenario analysis and gave inputs on what it was keen to see tested: in particular carbon price impacts on customers.

  In October 2021, the company published the results of the analysis within its 2021 climate change report by key commodity and includes the assumptions used that define the scenario.

• Case Study: EOS engagement in collaboration with IIGCC

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  In Q3 of 2021, EOS led a collaborative engagement on behalf of the IIGCC with Bank of America. It sought clarity on the company’s short, medium and long-term targets towards implementation of net zero, especially on the client side of the business. The company has imposed some client restrictions on project finance for coal and Arctic drilling. However, their relevance is questionable as the company, along with the rest of the banking sector, is moving away from project finance. The company prefers not to impose further client restrictions on corporate finance or other services, and kept referencing collaborative industry efforts such as the Partnership for Carbon Accounting Financials and the Net Zero Banking Alliance.

  EOS alongside the IIGCC questioned this approach and emphasised that the bank should reduce its exposure to certain types of fossil fuel expansion, such as greenfield development, new exploration, and pipeline infrastructure. It responded with common arguments against fossil fuel divestment, so EOS clarified that what we had asked for is different. EOS want to know about its process of client engagement and how this contributes to decarbonisation outcomes, referencing its own company engagement as an example of good practice.

  EOS are continuing to engage on behalf of the Trustee with Bank of America and encouraged the company to attend the IIGCC banking sector roundtable in March 2022.