Fortum recently acquired a majority stake in Uniper, increasing its stake in the company from 49.9% to 70%. Upon closing of the complete agreement, the transaction will substantially increase the company’s exposure to coal-fired power generation due to Uniper’s portfolio. More than 30% of the combined capacity is expected to be based on coal1. Consequently, this transaction will significantly increase the company’s carbon intensity. Due to these concerns, the World Wildlife Fund (WWF) Finland submitted a climate risk shareholder proposal for voting consideration at Fortum’s 2020 annual meeting, asking the company to “Include Paris Agreement 1.5-degree Celsius Target in Articles of Association”.
We recently engaged with Fortum to better understand the background of the transaction and the company’s perspective on the WWF shareholder proposal. The company provided useful context about the intricacies of the shareholder proposal but did not entirely alleviate our concerns about the company’s overarching direction of travel.
We note that Fortum recently published a sustainability report addressing all the pillars of the TCFD (Task Force on Climate-related Financial Disclosures) framework.
We look forward to seeing how these transparency commitments evolve with the expected integration of Uniper. We also note that Fortum’s carbon-free generation will increase in absolute terms as a result of the transaction and that Uniper has announced a plan to phase out more than half of its German coal-fired power production.
…Based on our assessment of company leadership from our analysis and engagement, BIS chose to withhold support for management on certain key issues, specifically by: (1) voting against the discharge of the board due to concerns relating to its corporate strategy to significantly increase its exposure to coal and (2) abstaining on the shareholder proposal asking the company to amend its Articles of Association to include a 1.5-degree target.
- Shareholder proposal “Include Paris Agreement 1.5-degree Celsius Target in Articles of Association”
We share the concerns of the proponent about the substance of the matter. We believe that the resolution addresses a material issue but that the modification of the Articles of Association is prescriptive, not the most suitable tool to address climate related matters and could have unclear and far-reaching consequences for both the company and its shareholders.
Moreover, we recognize that a binding commitment such as this one would be challenging to implement in a period of integration with Uniper. It would require a swift and radical change in the business model of the company, and its achievement would depend on decisions including the exact timing of the phase-out of coal in Germany that are not entirely in the control of the management of Fortum.
Until the integration of Uniper is complete, Fortum has neither the visibility nor the operational control required to set meaningful long-term targets based on science for the combined group. Moreover, we note that in any case, Fortum has committed to reassess the feasibility to set science-based emissions reduction targets for the combined portfolios once the two companies’ strategies have been aligned. Fortum’s goal is to have this work completed by the end of 2020.