ESG engagement can make good companies better | June 2020
Siemens AG is a solid company with high ESG standards. The company is committed to reducing its direct and indirect greenhouse gas emissions by 50% by 2020 and aims to become carbon neutral by 2030. Siemens systematically considers environmental features in product design. It conducts comprehensive life cycle assessments with a focus on resource and energy efficiency and makes available corresponding environmental product declarations. Siemens manages most material ESG risk and opportunities better than its peers, but recently made a decision that created a reputational risk.
While the company has a sophisticated process framework in place, its impact assessments proved to be less than air-tight in a recent joint venture. Siemens signed a contract to provide signal technology for a railway exporting coal from a mine in Australia. The construction of the Carmichael coal mine project, which is expected to be one of the largest in the world, has been controversial almost from the start, both locally and globally. Although Siemens is only a minor player, the company has met mounting protests and many have questioned its contribution to climate change.
Nordea Asset Management (NAM) engages with our holding companies when incidents like this arise in order to address them before they become a risk. Reputational risk is not easy to measure — even good companies get things wrong. Because disruptions can easily escalate, it’s important to respond effectively. Our engagement activities are applied to all kinds of companies, whether they demonstrate strong ESG performance or not, and we quickly initiated an incident-driven engagement with Siemens.
In January 2020, NAM met with Siemens’ Investor Relations and Head of Sustainability to discuss the
governance and process for evaluating sensitive/high risk business activities. NAM suggested Siemens prepare a
policy to clarify its role as a climate leader and establish a sensitive industry policy that includes joint ventures like the mine project.
Siemens is currently improving its risk framework with AI and ESG data in order to secure escalation of sensitive projects. The company will also strengthen its governance with external providers so that it can detect potential scenarios like this in the future and avoid reputational risk.
Even the best ESG companies are not 100% safe from incidents, and that is why it is important for us as investors to be able to engage even on these unexpected ESG issues. NAM will follow up this summer to track Siemens’ progress. Our role as an active investor is to work with companies – even those with high ESG standards – to make them better.
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