Wellington Management
Wellington Management Company is a Boston-based private, independent investment management firm with 17 offices globally across North America, Asia-Pacific, and Europe. It joined the Net Zero Asset Managers Initiative on 11 December 2020 and its initial target disclosure was published on 1 November 2021.
Percentage of assets covered by the Net Zero Asset Managers Commitment Statement
32.4% of total AUM (USD $436 billion)
Information on interim target(s) covering the proportion of assets to be managed in line with net zero
Baseline(s):
The baseline performance is defined individually for each investment strategy.
Target(s):
Portfolio coverage target
SBT Portfolio Coverage: By 2030, achieve a minimum %MV in companies with SBTi targets (or equivalent as assessed by Wellington Management), consistent with a linear increase from the portfolio’s 2019 baseline value to 100% by 2040
Portfolio decarbonisation reference target
Portfolio Construction: By 2030, achieve a 50% reduction in weighted average carbon intensity (WACI, tons CO2/$mn Revenue) vs 2019 baseline
Engagement threshold target
We have initially defined two basic glidepath options for targets focused on Engagement and Portfolio Construction. Each investment team determines which approach is most consistent with their philosophy and process, and this becomes the default proposed approach for consideration by clients with net zero targets.
GHG scopes included:
For the SBT Portfolio Coverage glidepath, Scope 3 is implicitly included as SBTi validation requires Scope 3 inclusion where Scope 3 emissions represent 40% or more of the company’s overall footprint. This is also the case for investment teams committed to driving decarbonisation through engagement only. For the Portfolio Construction glidepath, we include Scope 1 & 2 in our interim 2030 target. We expect to introduce a secondary target that addresses Scope 3 emissions, pending improved coverage and comprehensiveness of Scope 3 disclosures.
Methodology:
Net Zero Investment Framework
Science Based Target initiative for Financial Institutions
Scenario(s):
For the SBT Portfolio Coverage glidepath, the underlying targets being set are consistent with science-based pathways. These targets can be derived using the sectoral decarbonisation approach (SDA) where industry-specific guidance is available, which has a pathway for 1.5°C. The absolute contraction approach (4% in absolute terms or 7% in intensity terms) is also sufficiently rigorous to be consistent with science-based pathways. For the Portfolio Construction glidepath, a 50% reduction by 2030 is consistent with a net zero pathway, as reflected in the NZAM commitment language. We do not expect to require linear annual reductions but will regularly monitor progress for these strategies to ensure continuous improvement.
Additional information
Proportion of AUM committed:
Because we see our asset commitment and clients’ objectives as inextricably linked, we assess client portfolios and investment strategies one by one, commencing with asset classes with established methodologies (equities, corporate fixed income). Our AUM commitment includes a) accounts where clients approved implementation of a decarbonisation objective consistent with net zero by 2050 or sooner, and b) accounts where the investment team is committed to driving decarbonisation through engagement with the intention of improving client outcomes (encouraging companies to manage transition risk consistent with net zero). We currently exclude AUM managed for/ accepting ERISA assets as we monitor the US regulatory environment. We intend to update as we reach milestones e.g. new asset class in scope and/or incremental client approvals.
Policy on coal and other fossil fuel investments:
Our current exclusion policy is summarized in our Client Exclusions Policy, updated on 1 October 2021. The segment of the policy relevant to climate risk covers thermal coal extraction, thermal coal power generation, and oil sands extraction and evaluates companies based on revenue thresholds, reserves, and, in certain situations, announced phase-out plans. The AUM currently covered by this policy is USD50.5 billion as of 30 September 2021, representing more than 90% of Wellington’s cross-border sponsored funds.
Further information:
Percentage of assets covered by the Net Zero Asset Managers Commitment Statement
10.6% of total AUM (USD $146 billion)
Information on interim target(s) covering the proportion of assets to be managed in line with net zero
Baseline(s):
The baseline performance is defined individually for each investment strategy.
Target(s):
Portfolio coverage target
SBT Portfolio Coverage: By 2030, achieve a minimum %MV in companies with SBTi targets (or equivalent as assessed by Wellington Management), consistent with a linear increase from the portfolio’s 2019 baseline value to 100% by 2040
Portfolio decarbonisation reference target
Portfolio Construction: By 2030, achieve a 50% reduction in weighted average carbon intensity (WACI, tons CO2/$mn Revenue) vs 2019 baseline
Engagement threshold target
We have initially defined two basic glidepath options for targets focused on Engagement and Portfolio Construction. Each investment team determines which approach is most consistent with their philosophy and process, and this becomes the default proposed approach for consideration by clients with net zero targets.
GHG scopes included:
For the SBT Portfolio Coverage glidepath, Scopes 1 and 2 are always included, and Scope 3 is included where material, as SBTi validation requires Scope 3 inclusion where Scope 3 emissions represent 40% or more of the company’s overall footprint. This is also the case for investment teams committed to driving decarbonisation through engagement only. For the Portfolio Construction glidepath, we include Scope 1 & 2 in our interim 2030 target. We expect to introduce a secondary target that addresses Scope 3 emissions, pending improved coverage and comprehensiveness of Scope 3 disclosures.
Methodology:
Net Zero Investment Framework
Science Based Target initiative for Financial Institutions
Scenario(s):
For the SBT Portfolio Coverage glidepath, the underlying targets being set are consistent with science-based pathways. These targets can be derived using the sectoral decarbonisation approach (SDA) where industry-specific guidance is available, which has a pathway for 1.5°C. The absolute contraction approach (4% in absolute terms or 7% in intensity terms) is also sufficiently rigorous to be consistent with science-based pathways. For the Portfolio Construction glidepath, a 50% reduction by 2030 is consistent with a net zero pathway, as reflected in the NZAM commitment language. We do not expect to require linear annual reductions but will regularly monitor progress for these strategies to ensure continuous improvement.
Additional information
Proportion of AUM committed:
Because we see our asset commitment and clients’ objectives as inextricably linked, we are assessing clients’ investment portfolios and investment strategies one by one. It represents client AUM only in asset classes for which there are well established decarbonisation methodologies. Within these asset classes, our AUM commitment is a combination of accounts where we have client approval to implement a decarbonisation objective consistent with net zero by 2050 or sooner, as well as accounts for which the investment team is committed to driving decarbonisation through engagement with the intention of improving client outcomes, specifically encouraging companies to manage transition risk consistent with net zero by 2050 or sooner. We intend to update our commitment as we reach AUM milestones, such as when we establish actionable climate plans for a new asset class and/or receive incremental client approvals. For further context, this represents nearly 30% of AUM that we currently consider to be eligible for net-zero implementation. To arrive at eligible AUM: from all client assets invested in primarily in equities and corporate fixed income, we exclude sub-advisory AUM (as our ongoing dialogue continues with these clients) and AUM that currently manages or can accept ERISA assets (as we monitor the evolving US regulatory environment).
Current factors affecting our initial commitment include:
• Business model: Nearly 90% of our business is comprised of separately managed and sub-advisory accounts. As such client approval is required prior to making any material changes to an investment strategy, including adding a formal climate objective
• Methodology availability: A substantial portion of client assets are managed in asset classes where additional guidance is needed, such as private equity, hedge funds, and sovereigns. We therefore currently exclude strategies for which the majority of assets are non-corporate.
• Data availability – for some strategies investment teams are not yet comfortable with the quality for their investment universe
• Sequencing execution: It is critical that strategy-specific net zero implementation plans are well supported by data and tools. Now that our data and tools have been rolled out, we expect we can accelerate our climate action development plans and support a wider group of clients and investment teams
Policy on coal and other fossil fuel investments:
Our current exclusion policy is summarized in our Client Exclusions Policy, updated on 1 October 2021. The segment of the policy relevant to climate risk covers thermal coal extraction, thermal coal power generation, and oil sands extraction and evaluates companies based on revenue thresholds, reserves, and, in certain situations, announced phase-out plans. The AUM currently covered by this policy is USD45.8 billion as of 30 April 2022, representing more than 90% of Wellington’s cross-border sponsored funds
Further information:
Target setting: We have selected WACI as the portfolio metric for the interim 2030 target. This is primarily due to the recency of the PCAF methodology relative to internal/external familiarity with WACI, as well as the financed emissions metric’s sensitivity to market movements.
Our Commitment to Net Zero; 2020 TCFD Report; Developing net zero commitments and tools (webinar replay)