Recognising Fortum’s progress on decarbonisation

In early 2022, the Finnish electric utility company, Fortum, had committed to become carbon-neutral by 2050[1], and although the company had produced disclosures related to its plan to achieve this, we believed that the company needed go further in developing a resilient strategy that would support sustainable value creation.

As a result, L&G’s Asset Management business became a co-lead investor of the Fortum engagement within the Climate Action 100+ initiative (CA100+). 

Despite the global energy shock, following Russia's invasion of Ukraine [2] [3], we continued to engage with Fortum both through our co-lead role within the CA100+ initiative and independently via our proprietary Climate Impact Pledge (CIP). 

In March 2023, after a series of collaborative, robust and constructive engagements, the company increased its climate change ambitions by:

• Bringing forward its carbon neutrality target (across scopes 1, 2 and 3), to 2030
• Exiting all coal generation by the end of 2027
• Committing to set a 1.5°C aligned emission reduction target verified by the Science Based Targets Initiative (SBTi)[4]

These commitments were undeniably ambitious and incredibly welcome. However, we wanted to continue our engagement with Fortum to understand: 

• How it would meet its emission reduction targets
• How the company would facilitate its exit from coal
• How it was advocating for a policy environment that would support its own decarbonisation ambitions

This year, the SBTi approved Fortum’s 1.5°C-aligned near- and long-term science-based emissions reduction targets. Its targets are in fact more ambitious than those required for 1.5°C verification, and also include a commitment to reach net-zero GHG emissions across the value chain by 2040[5]. The company also disclosed its transition plan[6], which included granular detail regarding how it would meet its direct and indirect emission reduction targets and exit coal on an asset-by-asset basis.

Furthermore, in April, the company published its most recent Climate Lobbying Review[7]. The company has taken our feedback into consideration since launching its inaugural report in 2021. The detailed disclosure of its climate-related lobbying activities and the commitment to align these with the Paris Agreement highlight Fortum's dedication to addressing the global climate crisis, which we believe represents a financially material and systemic long-term risk to our clients’ portfolios.

Our engagement with Fortum has been comprehensive and grounded in integrity, and we believe that the company has made significant strides in its decarbonisation efforts. As a result, it is our intention to step back from our engagement with Fortum through both our co-lead position within the CA100+ initiative, and our Climate Impact Pledge.

In recognising the progress that Fortum has made in its decarbonisation efforts, we aim to signal to the market that meaningful progress and productive engagement is encouraged, recognised, and rewarded. We want to work with companies to bridge the gap that exists between their current plans and the benchmarks we hold them to. 

We will continue to monitor Fortum’s progress in actioning the plan it has set out, but look to refocus our engagement efforts on another demand-side company engagement[8].

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. The above information does not constitute a recommendation to buy or sell any security.

Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within strategies that do not include specific ESG goals within their objectives.

 
[1] Fortum Sustainability 2021, 2022
[2] Fortum's exit from the Russian market, October 2024
[3] Fortum to fully divest Uniper to the German State, September 2022
[4] Fortum renews strategy to drive clean transition; new financial targets and dividend policy and more ambitious environmental targets, March 2023
[5] Fortum introduces ambitious climate targets validated by SBTi, sets a net-zero target by 2040, January 2025
[6] Fortum Financials 2024, p.55
[7] Climate Lobbying Review, April 2025
[8] Why we’ve increased our focus on demand-side engagement, December 2023