ESG Watch: Activists notched up climate wins, despite rocky results ... - Reuters

ESG Watch: Activists notched up climate wins, despite rocky results season | Reuters

ESG Watch: Activists notched up climate wins, despite rocky results season

- Summary

- Support for climate resolutions at U.S. annual meetings fell from a third to about 10%
- Share activists Ceres tracked 256 climate resolutions of which nearly 80 were withdrawn
- Decline in U.S. activity may stem from new SEC disclosure rules that could force action
- Investors divest from companies rowing back on commitments, such as BP and Shell
- Republican's anti-ESG backlash may have had effect, but forecast it'll be short lived

July 3 - As the 2023 results season draws to a close, it presents a mixed picture. The general perception is that there has been a step back in the fight against climate change, amid record oil and gas prices and the political backlash against ESG in the U.S.

But the situation is more complex than that. And any sense that the oil and gas companies have “seen off” investors concerned about climate change look to be very premature.

There is a clear geographical split between Europe and the U.S., with support for climate resolutions holding firm in Europe but falling across the Atlantic. Support for climate resolutions at U.S. annual meetings fell from around a third to about 10%, says Mark van Baal, founder of pressure group Follow This, which has become one of the most visible filers of shareholder resolutions, particularly at the oil and gas majors.

“There is a concern that investors cannot separate short-term profits from long-term risks,” says Van Baal. “This is the narrative of big oil – that you have to choose between profit and the climate, which is just a fallacy. In fact, you have to choose between action and inaction.”

Kirsten Snow Spalding, vice president, investor network, at sustainability non-profit Ceres, is more optimistic. She says some 256 climate-related resolutions were filed this year, and while support was not as strong as 2022, Ceres tracked almost 80 that were withdrawn. “These represent wins because the companies generally commit to do what the shareholder asks for in the resolution,” Snow Spalding says.

Another reason for a decline in activity in the U.S. is the belief that impending Securities and Exchange Commission rules on climate disclosures may force companies to do what a lot of these resolutions are asking for.

Van Baal of Follow This believes many responsible investors, both in the U.S. and Europe, have already divested, with companies such as BP and Shell stepping back from previous climate commitments.

In June, the Church Commissioners for England, which manages the influential Church of England’s 10.3 billion pounds endowment fund, announced it had decided to exclude all remaining oil and gas majors from its portfolio, concluding that none is aligned with the goals of the Paris Climate Agreement, as assessed by the Transition Pathway Initiative (TPI).

“Recent moves from companies like BP and Shell cast significant doubt on whether these companies want to be part of the solution,” says Laura Hillis, director, climate and environment at the Church of England Pensions Board. “These companies have been given many opportunities to lead the transition; instead, they are doubling down on oil and gas. So, it is our conclusion, with regret, that it no longer makes sense for us to engage.”

Another sign of the limits to engagement came from the fact that many members of the Climate Action 100+ group, the investor-led initiative to ensure the world's largest corporate greenhouse gas emitters take necessary action on climate change, clearly failed to heed the calls of lead engagers, Dutch pension funds PGIM and NM, to vote in favour of the Follow This resolutions.

“The fact that lead engagers are calling for this and others are not voting for it shows there is something wrong with the system of engagement,” says Simon Rawson, head of corporate engagement campaigns at ShareAction.

A spokesperson for CA100+ said in an emailed statement that “Climate Action 100+ does not require or seek collective decision-making or action with respect to acquiring, holding, disposing and/or voting of securities”.

However, as part of its next phase, which will run to 2030, “Climate Action 100+ has enhanced the lead engagement model, with stronger and more robust engagement strategies. This includes the expectation that lead investors will disclose votes and rationales on Climate Action 100+ flagged votes, where allowable by jurisdiction, practical, and in line with signatories’ own internal policies and business objectives.”

This new phase shifts the focus of Climate Action 100+ from climate-related disclosure to pushing companies to lay out strategies to take action with climate transition plans.

According to Snow Spalding this shift is already happening. Resolutions asking for climate transition plans or emissions reduction targets plus transition plans on how to reach those targets were the most plentiful type of resolution this season “and many were quite successful”, she points out. Ceres is one of the founding members of Climate Action 100+.

More than 30% of shareholders at JP Morgan Chase, Wells Fargo and Goldman Sachs (with Bank of America not far behind at 28.5%) voted in favour of resolutions filed by U.S. shareholder advocacy group As You Sow asking the banks for detailed climate transition plans on how they will align their financing activities with their 2030 emissions targets. Morgan Stanley agreed to provide a transition plan on achieving its 2030 and 2050 goals in exchange for shareholders withdrawing the resolution, Snow Spalding adds.

She says that “many of the resolutions filed this year were a bit more detailed or asked for more than in previous years, when shareholders tended to focus on disclosure and reporting. This more nuanced approach to shareholder resolutions is likely also reflected in dialogues between investors and companies. Some investors may prefer the dialogue approach when the issues are complex, and votes can’t reflect the nuance of the engagements.”

The ESG backlash in the U.S. may also have had an impact on companies and investors, though this may be overplayed. “We won’t really know until investors report on their voting decisions whether the Republican governors’ and attorneys general criticism of institutional investors has impacted their votes,” she adds.

“These politicians’ criticisms of investors who consider material risks and opportunities in the voting guidelines ignore institutional investors’ fiduciary duty to clients to take into account all the risks and opportunities facing their funds and manage them for long-term return.”

Andrew Behar, chief executive of As You Sow, agrees. Writing in a blog post, he said: “While political efforts to roll back the clock are under way, they will crumble against the wall of economic reality (that) investors and companies deal with every day.” He added that there were already signs that this is happening.

According to research firm Morningstar, funds that market themselves as being opposed to ESG investment considerations, such as Strive’s U.S. Energy ETF, have seen a fall-off in new investor deposits.

Meanwhile, Reuters conducted a review of testimony– previously unreported public documents and interviews with elected leaders, lobbyists and attorneys – and found “mounting challenges to many pending anti-ESG bills”.

“While some investors are chasing short-run profits, others recognise that the oil and gas sector is going to be facing a dramatic shift in demand, and investors who seek long-term value from their holdings in the sector will continue to engage the oil and gas companies around their GHG (greenhouse gas emissions) goals and transition plans,” Snow Spalding says. “Our sense is that most investors are carrying on with their strategies, just perhaps being less public about it.”