As a first step in our commitment to achieving net-zero carbon emissions in our portfolio, in 2022 McConnell’s Board approved the removal of all assets involved in the production, distribution and retailing of oil, gas, and coal, considered part of scope 1 and 2 emissions. Specifically, we committed to divesting our portfolio of companies that derive at least 10% of their revenues from fossil fuels by the end of 2023. At the time of the divestment commitment, 3.8% of our endowment was invested in these types of fossil fuel companies.
Since the implementation of the negative screen, 99% of our portfolio is now free from oil, gas, and coal assets. We remain fully committed to achieving our net-zero carbon targets as well as the objectives set out in our Climate Action Plan. To this end, our investment team is continuing to actively engage with three private equity fund managers because of their ownership of misaligned fossil fuel assets.
Following discussions with our Investment Committee and Board, we are considering the following distinct strategies to meet our divestment target by the end of 2024. Our aim is to do so in a way that balances the cost and practicalities of divestment with the overall impact on emissions:
- Hold and monitor: The misaligned investments with one manager will mature in 2024 and no new investments in fossil fuel assets will be made.
- Hold and pursue engagement: One manager is considering repurposing or selling the problematic assets. We will consider a sale of our investment if no progress is made by mid-year.
- Pursue sale through secondary market: We will consider selling one manager’s assets in the secondary market by the end of 2024, if they do not present a clear plan to exit current and future fossil fuel investments.
As we proceed with next steps, we are sharing a few lessons learned following implementation of the negative screen:
- Asking for and then understanding asset-level data is time-consuming and requires upskilling, especially for identifying midstream and downstream activities related to fossil fuels.
- Transitioning assets in the private market takes time. Bespoke strategies, that consider a fund’s specific portfolio and approach, need to be developed with each manager.
- Our first objective is to reduce real-world emissions and not simply to decarbonize our portfolio. We will only consider selling through secondary markets when reducing real-world emissions through engagement is not possible.
We will continue to be fully transparent about our progress towards achieving our net-zero carbon goals, including our divestment commitment. We hope that this update is helpful to other investors as they consider next steps on their own journeys towards divesting from fossil fuels and achieving net-zero carbon emissions.