Lucie Pinson, Executive Director at Reclaim Finance, says that asset managers are increasingly settling for “surface-level” commitments on climate from the fossil fuel industry.
The 2023 AGM season set new records for ESG-related shareholder proposals, with 951 submitted, up from 941 in 2022, according to research by US proxy advisor Georgeson.
Despite record-breaking volumes, overall support for such proposals this proxy season has declined significantly as they become more specific and focused on the impact of environmental and societal issues.
Lucie Pinson, Founder and Executive Director at NGO Reclaim Finance, has witnessed over the past two years a growing trend of investors actively engaging and taking action to support climate-related initiatives, with this translating into more investors being willing to vote in favour of climate-related shareholder proposals.
However, she admits that the prevailing anti-ESG narrative emanating from the US has provided an excuse for some investors to weaken their already low expectations for hard-to-abate sectors, with only a minority remaining truly determined to push for meaningful outcomes.
Further, anti-ESG shareholder resolutions are on the rise, accounting for 10% of all ESG proposals this season – double the proportion seen last year.
“Not all investors among those who have been voting and engaging on climate-related issues are truly serious about driving meaningful change,” says Pinson, adding a minority of investors claim to act but this group can be divided between those that are genuine climate leaders that are actively transforming their investment practices and those that simply present themselves as such.
This situation, she says, reveals the “true face” of certain investors who attempt to maintain a balance between climate action and their profit-driven business practices.
“The prevailing anti-ESG narrative serves their interests, as it shifts blame onto others while they continue to benefit from the status quo,” she says. This narrative conveniently overlooks the substantial profits generated by the oil and gas industry, Pinson adds.
“In recent years, we have seen some investors continue to prioritise short-term profits over sustainable practices,” she says, although she acknowledges that this is not true for all investors.
In a recent report by Morningstar, average shareholder support across climate-related resolutions fell to 17.1% in the 2023 proxy season from 20% the year prior. It also noted that, while there was a slight increase in support for these proposals (17.6% from 14.7%) in non-US markets, for the resolutions filed at US companies, average shareholder support fell by almost nine percentage points to 16.7% in 2023 from 25.5% in 2022.
“There’s a mix of different factors behind these trends,” according to the report’s author Lindsey Stewart, Director of Investment Stewardship Research at Morningstar.
“Amid the increased volume of resolutions in 2022, we observed that asset managers were reluctant to support many of the new shareholder proposals on environmental and social themes on the grounds that they were unduly prescriptive.
“With similar high volumes of proposals this year, it appears that this trend has continued.”
This week, some of the UK’s largest asset managers were accused of backtracking on their support for shareholder proposals at oil and gas majors to reduce their carbon emissions.
Follow This Founder Mark van Baal accused asset managers – including Legal & General Investment Management (LGIM), abrdn and Janus Henderson – of releasing ExxonMobil and Chevron from climate action by voting against climate-related resolutions in 2023, despite voting for the same resolutions last year.
“The current windfall profits represent a once-in-a-lifetime opportunity to invest in new business models in renewable energy,” van Baal said in a statement.
“Shell, BP, Total, Exxon, and Chevron are using votes against the Follow This climate resolutions to justify postponing emissions cuts, which conflicts with the goal of Paris to limit global warming to 1.5°C.”
Pinson shares similar sentiments, arguing that strong financial performance is being used as a justification to not put “excessive pressure” on the industry regarding its decarbonisation progress.
She says that investors should instead ask firms for the adoption of a transition plan which should be assessed against a 1.5°C scenario with no/low overshoot and a limited use of negative emissions technologies, while making science-based milestones a “red line” for pursuing investment and engagement.
“Investors are making too many demands of companies, with most of them being focused on disclosure rather than alignment,” she says. “Investors should prioritise measures that will have the most significant short-term impact on GHG emissions mitigation, rather than watering these demands down with too many demands for disclosures.”
French oil and gaps major Total Energies, for instance, has been praised for its transparency on climate strategy and “apparent progress” in renewable energy initiatives, she says.
“However, if you consider their ongoing activities in oil and gas extraction, including plans for new fields in the short term, and acknowledge that TotalEnergies actually reports on low-carbon rather than sustainable renewable energies, the situation becomes more complex – it ultimately depends on the specific indicators one focuses on,” she says.
In July, TotalEnergies announced that it will kick-start gas production at its Absheron offshort development in Azerbaijan’s deep-water sector of the Caspian Sea. Further, a French court recently rejected a case filed by a coalition of NGOs and local municipalities seeking to an immediate halt to new oil and gas projects by the firm.
“Are we expecting companies to genuinely decarbonise and contribute to the fight against global warming, limiting emissions to 1.5°C? Or are we simply searching for new business opportunities within the climate fight, where companies provide easily digestible information without substantial transformation?”
According to Pinson, investors’ preferences and expectations may vary significantly depending on the indicators they prioritise and whether they seek substantial decarbonisation or simply “surface-level commitments” to the climate cause.
“Based on the voting records of some investors at oil and gas majors and other energy companies’ AGMs this season in the US and the EU, they are not positioning themselves to find real solutions to decarbonising and transitioning the sector,” she says.
Recent analysis by Reclaim Finance found that 30 of the largest asset managers in Europe and the US lack sufficiently robust policies to encourage oil and gas companies within their portfolios to stop developing new fossil fuel projects. By being complicit in fossil fuel expansion, the NGO states that asset managers are in breach of their climate commitments through their investments, particularly by purchasing bonds that have been issued recently by some of the biggest fossil fuel developers.
“There is no valid justification today for continuing to purchase bonds issued by these companies while remaining as shareholders,” says Pinson, adding that applying pressure on fossil fuel companies is one thing, but investors who actively invest in oil and gas expansion via investment in bonds have a “different level of responsibility”.
US asset manager Vanguard has the highest level of investments in new fossil fuel bonds internationally, holding at least US$1.2 billion issued by 19 major fossil fuel developers, including ConocoPhillips, the company behind the oil drilling Willow project.
By stopping the purchasing of bonds issued by fossil fuel companies, investors can remain a shareholder while refusing to invest further if their goals contradict their climate-related targets and emissions reduction goals, says Pinson.
In May, French bank BNP Paribas said that it will stop financing new natural gas projects, with Banque de France announcing that it will exclude companies developing oil and gas extraction projects by the end of 2024.