Hargreaves Lansdown has seen flows into ESG funds rise 11.8% over the past year, compared to a 1.87% uplift across other funds during the same period.
As the UK celebrates Net zero week, an initiative designed to raise awareness of carbon emission reduction, Hargreaves Lansdown said investors should scrutinise companies’ carbon emissions strategies to determine whether they will survive and thrive in a more sustainable world.
Laura Hoy, ESG analyst at Hargreaves Lansdown, said: “Lacklustre net zero plans should cause you to ask serious questions about how the company is governed. Worse still, if transition plans are deemed misleading, it could lead to litigation. Oil and gas giant Shell is already battling angry shareholders on several fronts thanks to accusations that its transition disclosures are inadequate and misleading.”
Hoy said businesses “serious about reducing emissions” will also look to have an impact outside of their own business, such as setting up plans to engage with customers and suppliers, working with industry leaders to create change and liaising with the government where needed.
Investors should also be conscious of accountability, noted Hoy, with board-level oversight a clear designation of responsibility throughout the entire management chain.
Hoy explained: “Net zero targets should be aligned to compensation requirements to encourage management to step up to the plate and embed net zero into the company culture.”
Hargreaves Lansdown points to manufacturing group Mondi as an example of a company that has worked hard to integrate net zero into top-level decisions making, with sustainability goals linked to executive bonuses.
Hoy said: “With its targets in place, the group’s building out an engagement process that will help suppliers and customers reduce their emissions as well. The group’s strong disclosure means investors can keep tabs on performance against these targets to monitor their execution.”
The firm also cited AstraZeneca as another investment that is taking solid steps to achieve its net zero goals. The pharmaceutical giant has set itself a target to halve its scope 3 emissions by 2030 and reduce them by 90% by 2045. To achieve this, the group requires that suppliers across key areas set their own science-based net zero targets.
