Commentary

ICYMI, the Writing was on the Wall

Oil and gas majors may be on the back foot this week, but they’re far from alone in needing to do more.

Forbes is calling it the “day the energy world changed”. The writing was already on the wall, but the confluence of events that left the oil and gas sector reeling felt like a turning point. Whether or not the success of legal or shareholder challenges were influenced by a new political tone in the US, a stark if overdue warning from the International Energy Agency or even mounting meteorological evidence, the message was clear.

As pointed out in Carbon Tracker’s latest assessment of the net-zero plans of oil and gas majors, there is rarely enough detail, ambition or immediate action to convince investors or policymakers that firms are adequately handling the transition to a low-carbon economy. As US$300 billion US pension fund CalSTRS put it, ExxonMobil “will not be the last” company to have directors ejected for failure to adapt.

“The competence of boards in managing climate risks and opportunities will prove critical,” said Morningstar’s analysis of the Exxon vote. Oil and gas may have hogged the headlines, but other sectors have their issues too, not least the finance industry.

At its AGM yesterday, Deutsche Bank faced public criticism from fund managers pushing for an accelerated plan to phase-out coal finance, as well as a countermotion filed by ShareAction and the Association of Ethical Shareholders over its financing of oil sands exploration. Today, attention turns to HSBC, whose shareholders will vote on the climate change plan the bank put in place in response to a now-withdrawn resolution by multiple shareholders.

Overall, signals are mixed, and the pace of change frustrating slow. Driven by regulation, UK banks are seen as improving on governance, risk management and disclosure, but transparency on climate’s impact on loan books remains poor, amid wider central bank concerns on data gaps. Meanwhile, the legacy of decades of financing practice in the City is slow to fade.

Insurers are increasingly coming under the microscope, with AIG, Lloyd’s of London and Tokio Marine targeted for their being slow to stop insuring and investing in coal, and US firms coming under fire for their policies on governance, biodiversity and human rights as well as climate change. Along with this external pressure, insurers’ climate policies are due to gain greater regulatory attention too.

Regulatory and legislative action is as much a driver of change as investor or consumer demand. Here, inertia can be seen in continued fossil fuel subsidies by governments, while the speed at which rules can be implemented for sustainable investment face practical and political limits. No wonder investors want to take a closer look at individual countries’ climate change governance in more detail. Regrettably, many financiers, investors and policy makers are still catching up with the realities outlined for more than a decade by the sadly departed Sir Roger Gifford.

 

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