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Take Five: From Paris to Dubai, via Bonn

A selection of this week’s major stories impacting ESG investors, in five easy pieces.    

Intergovernmental negotiations on sustainability themes were far from harmonious this week, as investors and directors began to consider the lessons of the AGM season.

Plastered in Paris – Negotiations on a treaty to end plastic pollution, held in Paris this week, may have provided a foretaste of the climate negotiations taking place at COP28 in December in the UAE. The second meeting of the Intergovernmental Negotiating Committee (INC-2) was supposed to discuss options for legally binding and voluntary measures addressing plastic use as a key step to reaching consensus by the end of 2024. But proceedings were held up, by two days according to some estimates, due to rows over whether a two-thirds majority could carry key decisions, with countries including Saudi Arabia, India, Russia, China and Argentina dissenting. A compromise was reached, allowing delegates to focus on the issues – including the fact that recycling is having limited impact while plastic production increases – which is vital, given an INC negotiating schedule spanning approximately two weeks across three further summits. Expect similar procedural debates and delays in December too.

Respect due – Is Europe moving too fast on sustainability? Or is it showing dangerous signs of slowing down, signalling to others that it’s ok to take their foot off the, erm, gas? The European Parliament this week backed a robust version of the Corporate Sustainability Due Diligence Directive (CSDDD), which includes the finance sector in rules to hold firms accountable for human rights and environmental harms along their supply chains. The current iteration of the CSDDD, which has had a particularly troubled passage, rejects a number of last-minute compromises, and is still subject to trilogue discussions with member states and the Commission. But passing sustainability-related legislation always was a battle and always will be. European decision-making might be conducted under a very peculiar form of democracy – and may be overly-bureaucratic compared with the US’s ‘follow-the-money’ approach to climate action – but its dynamism is undeniable, especially when viewed from this sceptred isle. While the green taxonomy may be compromised and far from complete, corporate reporting rules under threat and sustainable funds sometimes a pale shade of green, Europe has achieved much in pursuit of its green deal, pioneering ideas that were initially considered impossibly unworkable, such as the Carbon Border Adjustment Mechanism.

Be the changeESG Investor’s weekly update on voting outcomes at oil and gas sector AGMs counts more clouds than silver linings as the season comes to close. Votes for a Follow This climate resolution to introduce Scope 3 emissions reduction targets fell to 11% at ExxonMobil from 28% last year, and to 10% at Chevron from 33% in 2022. Noting that similar resolutions received 17% of the votes at BP, 20% at Shell, and 30% at TotalEnergies, founder Mark van Baal partly blamed anti-ESG sentiment for investor temerity – as well as a failure to decouple short-term profits from long-term risks. “Your board will only choose a different road if you, the owners of the company, vote for change,” he told fossil fuel shareholders, pointing more to asset managers than owners. Perhaps more encouragingly, almost a fifth of shareholders voted in favour of resolutions calling on ExxonMobil and Shell to accurately disclose the role of asset transfers in their reported GHG emissions reductions, which would stop them claiming CO2 cuts from divestments. ExxonMobil’s AGM also saw 36% back greater transparency on methane emissions, perhaps the easiest and most immediately impactful climate action open to the oil and gas sector.

Taxing transparency – A strange feature of recent AGM seasons is the practice of the world’s largest retailer of delaying release of resolution voting results until after the subsequent Memorial Day holiday, in the somewhat forlorn of minimising scrutiny. In all, 18 proposals were tabled and although Amazon’s in-house holdings meant there was little chance of an overall majority, leaving some investors to ponder their future options, the outcomes still make for interesting reading. Investors behind resolutions on workers’ rights, climate change and surveillance technology, among others, were pleased to see backing in the range of 30-40%. Morningstar described a ‘say-on-pay’ vote as a “key area of dissent”. Meanwhile proxy voting consultants PIRC noted that levels of opposition were generally weaker than in 2022, while support for a tax transparency resolution ticked up slightly from last year, suggesting it is a cause unsullied by the US culture wars.

Bonn chance – Looking forward to next week, it’s fitting that the next critical steps toward the Global Stocktake should begin on World Environment Day. The Bonn Climate Change Conference marks the end of its technical phase, meaning parties conclude their assessment of progress toward achieving the goals of the Paris Agreement (a synthesis report will be published in September). The political phase will see its first output in the decisions taken at COP28, but it will also inform the next set of nationally determined contributions, the climate pledges to be made by parties in 2024 and 2025. As if that weren’t enough, Bonn will also assess progress on the key decisions taken at COP27, on adaptation, climate finance and especially loss and damage. COP28 President-Designate Sultan Ahmed Al Jaber said the Bonn sessions would be “critical for shaping meaningful, pragmatic, and impactful outcomes”, promising to work for affordable and available climate finance, an operationalised loss and damage fund, and a tripling of renewable energy by 2030. His pledge to deliver a fair and transparent presidency, however, may be viewed with scepticism by his many critics, following recent attempts to greenwash his Wikipedia entry.

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