Industry

SEC Allows Climate Votes at Major US Institutions

Regulator refuses requests for no-action relief against shareholder resolutions calling for IEA alignment.  

Leading US banks and insurers will face votes at their upcoming AGMs asking for policies aligned with the International Energy Agency’s (IEA) net zero roadmap, after challenges to shareholder resolutions were rejected.  

Citi, Morgan Stanley, JP Morgan and Chubb all had their challenges to climate-related resolutions turned down by the Securities and Exchanges Commission (SEC). The US regulator, which issued draft proposals for mandatory climate reporting last week, is expected to uphold fewer objections from issuers this 2022 proxy season, having rescinded Trump-era guidance in November which  expanded the prohibition of ‘micromanagement’ by investors.  

Shareholders at other North American banks – including Bank of America, Goldman Sachs, Wells Fargo, Bank of Montreal and TD Bank – have also filed proposals asking for lending and financing policies consistent with the IEA’s scenario for limiting climate change to 1.5 degrees Celsius. As well as Chubb, fellow insurers Hartford and Travelers have filed no-action requests against similar proposals lodged by shareholders.  

The proposals ask for the firms to adopt policies by year end which move toward elimination of financing or insuring new fossil fuel developments, as called for by the IEA.  

Bank of America, Wells Fargo, and Citigroup will all be holding their AGMs on 26 April, while Goldman Sachs will meet on 28 April. JPMorgan Chase and Morgan Stanley have yet to announce their meeting date. Chubb’s shareholders will vote on a resolution filed by Green Century Capital Management in May.  

Upsurge in investor support 

The Proxy Preview 2022 analysis published by US shareholder advocacy group As You Sow earlier this month reported that a record 110 climate-related resolutions have been proposed by shareholders of US firms this year, making it the most common topic among a record 529 ESG proposals – 20% more than were filed in 2021.  

Companies have filed for no-action relief from the SEC for around 100 of this year’s proposals, a similar number to the amount successfully challenged last year. The vast majority of these are still to be decided by the SEC, but its decisions on these IEA-related proposals suggest fewer issuers will be granted no-action relief this year.  

Heidi Welsh, Executive Director at the Sustainable Investments Institute, which co-authored the Proxy Preview report, said the combination of stronger support for ESG-related votes at last year’s AGMs and the likelihood of fewer omissions this year may lead to an increased number of resolution withdrawals.  

“If a lot is not going to get blocked by no-action letters, and the votes last year were high, to what extent will this show up in a lot of agreements and withdrawals? So far, we don’t yet know the answer to that,” she said.  

Typically, half of ESG resolutions filed by shareholders are also withdrawn prior to the AGM and become subject of negotiation between shareholders and board directors.  

Risk of stranded assets 

All the major banks facing climate votes have made commitments to achieving net zero financed emissions by 2050, asserting they are seeking to align these commitments with science-based models, including frameworks and methodologies from the IEA and the Net-Zero Banking Alliance, convened by the UN Environment Programme Finance Initiative (UNEP FI). The shareholder proposals ask banks to fulfil the UNEP FI’s recommendations for credible net zero commitments and the IEA net zero roadmap.  

“Committing to align with the IEA and UNEP FI frameworks but failing to fulfil recommendations will invite accusations of greenwashing, a clear reputational risk for the banks,” said Kate Monahan, Director of Shareholder Advocacy at Trillium Asset Management. “In underwriting projects that are inconsistent with the IEA and UNEP FI guidance, the banks run a risk of loading potential stranded assets onto their clients’ balance sheets – potentially leading to litigation risk. We should know whether the banks’ lending and underwriting policies are consistent with their net-zero commitments.” 

A recent report on the climate policies of the world’s 30 largest financial institutions found a “clear disconnect” between short-term actions and long-term commitments, suggesting “a significant lack of meaningful short-term action in the face of the climate crisis” by most firms. Separately, an analysis of the oil and gas policies of 150 large financial institutions, headed by Paris-based NGO Reclaim Finance, said that the current policies of banks, insurers and investors are “too flawed” to align their businesses with their net zero 1.5C targets.  

Making good on commitments  

The NZBA recently stated that it “does not support the financing of fossil fuel expansion” and “encourages members to conduct client engagement and education as the primary tool for engendering real-economy impact”. Members joining the alliance, which has attracted more than 100 members since foundation last April, must sign a commitment statement, which requires them to set emissions reductions targets for 2030 and 2050 within 18 months of joining.  

Paul Rissman, a Board Member of the Sierra Club Foundation, said: “These resolutions aren’t calling for anything the banks haven’t already publicly committed to do; in order to achieve the targets they’ve set out, they must make a plan to phase out their support for fossil fuels and invest in a clean energy future.” 

Green Century said it now expected resolutions filed with Travelers and Hartford to be given favourable rulings by the SEC.  

“In response to Chubb’s business as usual approach to the climate crisis, investors are sending a clear message: immediately cut off all underwriting support for fossil fuel expansion projects,” noted Elana Sulakshana, Senior Energy Finance Campaigner at Rainforest Action Network.  

“Today’s decision from the SEC shows the enormous risks that Chubb’s unchecked support of fossil fuel expansion poses to communities, the economy, and the company’s own shareholders,” she said. 

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