Engagement summary: TP ICAP Q1 2023
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TP ICAP is a leading provider of market infrastructure, connecting clients across the world’s financial, energy and commodity markets. When we engage with a company, we like to ask whether they are doing the basics first, for example accurately measuring what they can in terms of their greenhouse gas (GHG) footprint, and then we will ask about their ESG progress from there. We tend to find a divergence of sustainability integration and progress in these discussions, but what is uniform is the desire to learn what needs to be done to improve by the investee company, and TP ICAP is no exception.
Our initial meeting with TP ICAP in February took place after an initial exchange of emails: our questions and replies to them by the management team. Their answers were comprehensive, but we always find much more benefit by meeting face to face, which we then did. We feel this sets the foundation for finding out more about their policy on ESG factors going forward.
Greenhouse Gas Emissions
Our initial concerns covered the lack of detail for all 15 categories in scope 3 reporting, particularly as TP ICAP state that they are the leading broker globally in energy and commodities division actively trading fossil fuels. Their largest clients are producers, such as BP and Shell, trading houses like Vitol, Trafigura and other investment firms. They currently generate 60% of the energy division’s revenue from trading oil products. We were keen to know more about the company answers to their CDP questionnaire and if they would sign up to the Science based targets initiative. Extremely important for us to see in any sustainability report is a detailed Taskforce on Climate-Related Financial Disclosures (TCFD) report laying out the predicted risks and the benefits that will impact a business in different climate change scenarios, so we wanted to talk through their progress in this and also, as we see more and more successful litigation from those suing for climate damage, we like to know if companies are already reserving for potential liabilities here. Insurance is one area where we expect to see premiums increase as losses increase from climate change and we also enquired about this.
Their response to the points we raised were very interesting: in 2022, TP ICAP broadened the parameter of their reporting to cover five of the 15 GHG categories that form Scope 3 emissions.
These are:
- Purchased Goods & Services
- Fuel & Energy
- Waste Disposal
- Business Travel
- Commuting
We noted that as a pass-through business where they are buying and selling but not owning the assets, category 14 of the franchise model could still apply, and they agreed to go away and look at this. They also let us know as Purchased Goods & Services is currently (on their measurements) the source of the majority of their Scope 3 emissions, they have engaged with their largest suppliers (which account for nearly half of their total annual spend) by issuing questionnaires to gather their relevant data and action plans.
They have no immediate plans to participate in the Science Based Targets Initiative but will keep this under review.
TP ICAP are also looking to benefit from the energy transition and are active in trading renewable energy certificates, compliance credits for the EU and UK emissions trading schemes, voluntary emissions credits and weather derivatives. The revenue growth for their energy transition business FY 2021 vs FY 2020 was c. 40%. Admittedly their base revenue in this division is small, but nonetheless this area is a good opportunity for growth. In 2022, Tullett Prebon successfully launched an energy desk in Brazil with a specific focus on renewables – they state over 80% of Brazil’s energy comes from renewable sources and they see further growth opportunities for this division in the US and Latin American markets.
With regards to TCFD reporting, they commissioned an external consultancy to undertake a high-level climate change impact analysis of the physical and transition risks and opportunities for TP ICAP last year and we look forward to future disclosure of this in their 2023 Sustainability reporting.
Currently they see negligible change in the pricing of their insurance cover and at this stage, they don’t foresee any potential litigation related to climate change, given the nature of their business.
While renewable energy is one pillar of their strategy, they are also focussed on cutting their consumption of energy. They have reduced in their real estate footprint and they have plans to reduce their data centre footprint. They are engaging with landlords across their property footprint, to ensure they source 100% of their energy usage from renewable sources. Their absolute target is to be carbon neutral across both scope 1 and scope 2 emissions by the end of 2026.
Employee Diversity and Inclusion
Percentage of gender representation by Category
Current Reporting Year 1 Jan 2021 - 31 Jan 2021 |
Comparison Reporting Year 1 Jan 2020 - 31 Dec 2020 |
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Category | Female | Male | Female | Male |
Executive Management | 20% | 80% | 24% | 76% |
Non Executive Management | 27% | 73% | 26% | 74% |
Professionals | 21% | 79% | 18% | 82% |
All other employees | 25% | 75% | 24% | 76% |
Source: TP ICAP Annual Reports and Accounts 2021
We covered their Women in finance charter targets where they state: “We are pleased to report that we have met our target to have women comprise 25% of our senior management roles by the end of 2025 ahead of schedule.” We queried this in light of the above table – analysis of which comes down to their use of their reference group for women in finance being the Global Management Committee and Global Management Committee -1 level.
Despite 20% of women being in the top tier of management, the upper pay quartile breaks down as 96% men, 4% women. TP ICAP said that they would go away and investigate this for us. We note 36% of their Board is female and they did explain that promoting diversity at every level in the organisation was a key focus for their Group Board and senior management. We would like to see significant progress in this area as we believe that diversity has an important impact on culture.
One of the highlights of our engagement was going through details on the ICAP charity day, which is a great event involving many famous A celebrities, who participate and make trade deals on the phone with ICAP clients:
“ICAP Charity Day has made a greater impact than we could ever have imagined By giving away all our revenues and commissions on just one day each year, we have positively changed the lives of thousands of people less fortunate. Thanks to the efforts of our customers, staff and suppliers, our 30th ICAP Charity Day raised a fantastic £4.4million bringing the total amount over 30 years to approximately £160million!”
These funds have been distributed via more than 2,800 donations to more than 1,700 charities in 25 countries, making a positive difference to millions of people globally.
As we continue to engage with companies, we envisage the nature of these engagements becoming increasingly focused on how the companies in which we invest can protect and enhance biodiversity, what they do on waste management and reducing pollution, and what they are doing to encourage a more fair and equal society.
This was a particularly good engagement as we felt that the responses from TP ICAP show that they are taking sustainability seriously. They are not standing still but continuing to work on TCFD and carbon accounting in between sustainability report publications and that they are very willing to listen to feedback on what we would like to see change.
The topics we engaged on would be uniform across the companies we hold despite all companies being at different stages in their journeys and and we hope to highlight good outcomes as well as what can be done better.
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