Engagement Update with Unicredit

In this engagement piece, Ita McMahon updates on the engagement meeting with Unicredit's Investor Relations team ahead of its AGM, to better understand their fossil fuel lending and plans to reduce lending to high carbon sectors. 

We met with the Investor Relations team at Unicredit ahead of the company’s Annual General Meeting (AGM). The aim was to better understand the extent of their fossil fuel lending and to receive a progress report on their plans to reduce lending to high carbon sectors. The meeting informed how we voted at the AGM.

We do not invest in companies specialising in fossil fuel extraction. These companies are excluded from our funds. However, we recognise that we have a small number of banks and insurance companies in our funds that aid new fossil fuel extraction by providing financing or insurance to the fossil fuel industry.

We have committed to engaging with these companies ahead of their AGM each year. Our aim is to use our influence as shareholders to vote against certain resolutions as a means of signifying our dissatisfaction where a company has supported new fossil fuel projects in the previous year.

It's important to acknowledge that Unicredit’s investor relations team is responsive to our requests for meetings and further information on social and environmental topics.

It's important to acknowledge that Unicredit’s investor relations team is responsive to our requests for meetings and further information on social and environmental topics. In this call, they invited one of their colleagues, a carbon specialist, to join and answer our questions. We were also pleased to see increased transparency in Unicredit’s carbon reporting this year.

For the first time they have provided information on the extent of lending to specific high-carbon sectors and have provided estimates on the associated financed emissions. Another positive is that over the past few years the bank has set a number of sector-level decarbonization targets for its lending portfolio. These are some of the topics that we covered in our engagement call.

It is clear that oil and gas financing is not a substantial part of the bank’s lending portfolio (€4.7bn vs €30.6bn for commercial real estate, for example). In addition, the bank has lowered its financed emissions for the oil and gas sector well below its targeted reduction goal. The targets themselves are aligned to the International Energy Agency’s decarbonization pathway, so they are based on a credible external source. On thermal coal, Unicredit already has reasonably stringent policies in place. For example, it provides only limited services to coal developers and to those companies without a phase-out plan in place.

The targets themselves are aligned to the International Energy Agency’s decarbonization pathway

In addition, we talked through Unicredit’s environmental and social lending, which now accounts for 15% of new loans issued in the reporting year.

Finally, we raised the subject of its ranking in a World Benchmarking Alliance review of financial service. Our view is that the company scores lower than it should, and we asked Unicredit to investigate.

Outcome: As a result of our meeting, we took the decision to abstain on the company’s Annual Report and Accounts. It is clear that the company has taken a thoughtful and well-planned approach to reducing its financed emissions. We were pleased with the increased transparency in its reporting. Nevertheless, the company could not confirm if it had financed new fossil fuel projects in the past 12 months so we took the decision to abstain on the Report and Accounts.

Written by Ita McMahon