Lauren Compere, Managing Director
While our priority as responsible stewards of capital is engaging directly with the companies we invest in, Boston Common also employs a robust public policy engagement strategy. We focus on existing or proposed policy that: (1) directly or indirectly erodes shareholder rights; (2) enhances access to standardized and enhanced corporate ESG disclosure supporting investment decision-making; (3) presents opportunities to fundamentally improve ESG or sustainability management; (4) addresses systemic risks such as climate.
The climate emergency makes it critical for investors to actively support progressive climate policies and interventions, making public policy engagement a core pillar of our approach. Advocating progressive climate policies has been a top priority of ours even prior to the Paris agreement. We call for mandatory climate disclosure (aligned with TCFD), efficiency requirements such as methane gas leak management in the US, innovation and green infrastructure investment, and disclosure of political and lobbying practices.
What has changed in recent years is the urgency for regulatory interventions. The latest IEA energy modeling concludes there is a very narrow path to 1.5° C by 2050, which will require an immediate stop to new investment in fossil fuel supply projects, no new sales in non-electric vehicles by 2035, and a net-zero emissions global electricity sector by 2040.
Under the previous US Administration, four years of potential progress in mitigating climate impacts was lost. While investors and businesses continued addressing climate, advances were blunted by lack of appropriate government intervention. This motivated Boston Common to sign onto the new Global Investor Statement on Climate Change supported by 456 investors with over $41 trillion in assets. We have supported previous versions and encourage others to sign onto the latest statement, highlighting the critical need to back comprehensive action steps for governments ahead of COP26; this includes stepping up ambition related to NDC (Nationally Determined Contributions) targets, adopting mid-century net-zero goals (2050 or sooner), and supporting mandatory climate disclosure. These actions must be combined with addressing just transition of workers and communities with a focus on resilience.
Partners in Policy
We use collaborative platforms to carry out much of our public policy engagement: the PRI, Ceres, US SIF, Shareholder Rights Group, the International Corporate Governance Network (ICGN), and the Asian Corporate Governance Association (ACGA). Since the Paris Agreement, we have focused on the need for new and innovative ways of collaborating, such as the Climate Safe Lending Network (CSLN), which Boston Common helped found and evolve. A recent CSLN paper, Financial Stability in a Planetary Emergency, outlines the essential role of bank regulators with 10 climate finance proposals including a framework for Paris alignment and net-zero targets, adjusting capital instrument requirements, climate stress tests, and a focus on community reinvestment to support resilience and climate action.
Prioritizing Mandatory Disclosure
Boston Common prioritizes individual engagement on public policy when warranted, such as recent consultation on mandatory climate disclosure by the US Securities & Exchange Commission (SEC), reinforcing the recent G7 announcement supporting mandatory disclosure. Our call for mandatory disclosure is further qualified by a new study that found mandatory ESG reporting enhanced the quality and increased the accuracy of reporting while reducing dispersion among analysts’ earnings forecasts.
Disclosures to CDP in 2019 showed 215 of the largest global companies reported nearly US$1 trillion at risk from climate impacts, with many of those impacts likely to hit within the next 5 years. Meanwhile, companies also reported US$2.1 trillion in cumulative gains from realizing business opportunities related to climate change.
In addition to our own direct public policy engagement, we engage companies on climate lobbying practices, both direct and indirect (via trade associations). For over a decade, this has been both a standalone dialogue focus and an integrated component of our engagement with global banks on climate and financed emissions, and with companies on Eco-Efficiency. It is essential to consider a company’s consistency in approach on climate through increased transparency on risk management and due diligence procedures, alignment of climate lobbying with stated actions, and escalation strategies with trade associations if there is material misalignment.
We must raise ambition and accelerate action if there is hope of altering the global climate trajectory, which is costing economies trillions of dollars, and levying disproportionate impacts in the developing world and on low-income and communities of color. Focusing on innovation and climate resilience supported by robust climate policies will create opportunities for investors, companies, and governments. A strong and coordinated investor voice backing progressive climate policies is essential to making this happen.
Please read Boston Common Asset Management’s letter in response to an invitation for comment on climate change disclosures by SEC Acting Chair Allison Herren Lee.