Investors face difficult choices this AGM season, but they’re far from alone.
In its broadest sense, ESG investing is about placing what were once called ‘externalities’ at the heart of the business and investment process. The big questions are not only around how to do it most efficiently, but also whether we are doing it quickly enough to avoid the more extreme consequences of ignoring externalities for decades, if not centuries.
The diversity of perspectives on these issues was reflected this week in reactions to the release of Shell’s Energy Transition Strategy. While members of the Climate Action 100+ investor coalition expressed cautious support, a number of NGOs asserted their dissatisfaction with a lack of interim targets, urging shareholders to reject the first-ever advisory vote on an oil and gas major’s climate strategy, due on May 18.
Where do asset owners stand on this and other climate resolutions and do their asset managers agree? Any investors keen to ensure their managers are voting in line with their views this AGM season may turn to guidance from the UN-convened Net-Zero Asset Owners Alliance. They were given further food for thought by the release of a new strategy by the Principles for Responsible Investment, as the organisation attempts to balance a strengthening emphasis on real-world impact with the need to remain a ‘big tent’.
Shell was grouped among the leaders rather than laggards in a report on oil sector transition backed by Swedish pension fund AP7, while other studies this week suggested that the overall pace of transition to net-zero business models – among funds and underlying companies – have not yet got out of second gear.
Institutional investors’ continued pursuit of decision-useful information on climate issues and other ESG factors received a boost this week with New Zealand making good on its commitment to becoming the first country to require all financial sector firms to report on climate by law. Further, IOSCO Chair Ashley Alder gave an optimistic assessment of timelines for securities regulators to adopt a planned global standard on climate reporting, but there were reminders too of firm’s mixed progress on putting a monetary value on their exposure to climate risks.
There’s every chance the picture will be a little clearer this time next week, with the expected release by the European Commission of details about the economic activities to be included in its Sustainable Finance Taxonomy (and thus investible by green funds), and most likely also its revisions to the Non-Financial Reporting Directive. After months of criticism, delays and rumours of unrest, the Commission may well kick the can down the road, delaying their decision on whether or not to include gas and nuclear.
No longer willing to sit in Europe’s shadow, the US is also expected to make significant commitments, as it prepares for a climate summit next week. An imminent executive order on ‘Climate-Related Financial Risk’ is expected to unveil a government-wide strategy “to measure, mitigate and disclose climate risks facing federal agencies”.
To paraphrase, Michael Mann on a documentary about 12 months in the life of Greta Thunberg, it would have been a lot easier if we’d started earlier.