Fidelity’s Climate Rating: What You Need to Know
If Fidelity is on your shareholder list, the institution’s new climate rating system could impact you. Just in time for the COP26 Climate Summit, Fidelity International made waves by announcing its commitment to cutting the carbon footprint of its investment portfolios in half by 2030 compared to 2020 levels. Furthermore, Fidelity publicly announced it plans to achieve net zero emissions in its portfolios by 2050. The firm has now created a proprietary “Climate Rating”, which analyzes portfolio companies’ alignment to a net zero pathway. Companies are assessed across three main themes: net zero ambitions, climate governance, and capital allocation. Each theme has corresponding factors that are individually researched and scored, as shown below.
From these ratings, Fidelity sorts companies into 1 of 5 buckets noted below. For a company to be put into its corresponding bucket, in addition to having a certain score, the company must meet minimum alignment criteria, including whether a company has executives overseeing the transition and if a company has net zero targets set.
- Buckets 1 and 2 are composed of the best scoring companies and are deemed eligible for inclusion in a net zero portfolio.
- Buckets 3 and 4 are subject to continued investment with engagement and voting. Fidelity highlights engagement as key to achieving its portfolio emissions reduction goal.
- Bucket 5 companies are assessed and undergo time-bound engagements to determine if material changes can be made to meet emissions targets outlined in the Climate Rating framework. This will ensure that companies have complied with Fidelity’s minimum climate requirements and have established a viable transition plan. Companies that have failed to improve after three years will risk divestment.
After all companies in Fidelity’s investment universe are evaluated, Fidelity will aggregate the company-level ratings to score funds for their net zero alignment. Transition targets can then be assigned at the fund level in addition to the company level. Following the assessment process, Fidelity will then allocate resources through investment and engagement to the greatest emissions reduction opportunities. Navigating investors’ expectations related to ESG can be tricky. With ESG Infinite, you can identify your top holders’ expectations and ensure your company’s ESG processes and targets align.
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