The £38.3 billion pension pool has set climate targets for fossil fuel majors and banks and will vote against board chairs if they are not met, with divestment viewed as a last resort.
Border to Coast, one of the largest pension pools in the UK, has announced plans to escalate its voting activity at oil and gas companies and banks this year if they don’t meet its climate expectations.
The pension pool, which is responsible for £38.3bn of investments on behalf of 11 Local Government Pension Schemes (LGPS) funds, has said it will vote against the chair of the board at oil and gas majors which fail to meet the first four indicators of the Climate Action 100+ (CA100+) benchmark, which includes short-, medium- and long-term emission reduction targets.
It will also vote against oil and gas companies scored three or lower by the Transition Pathway Initiative (TPI), meaning they have not yet developed a strategic understanding of climate risks and opportunities or integrated this into business strategy and capital expenditure decisions. “At the moment I expect we are going to vote against the chair at the vast majority of our oil and gas company holdings,” Colin Baines, Stewardship Manager at Border to Coast, said. Baines newly created role reflects the pension pool’s ambition to ramp up its voting activity in this area.
However, he noted that the situation may change as Border to Coast planned to engage with oil and gas companies in the run-up to AGMs to try and drive improvement and meet their climate expectations.
Fossil fuel majors such as Shell, BP, Total, Exxon and Chevron currently fail to meet the first four indicators of the CA100+ benchmark which is expected to be updated again in March.
Alongside using CA100+’s first four indicators to inform its voting, Baines said Border to Coast would focus its engagement with oil majors on the initiative’s fifth and sixth indicators focused on decarbonisation strategy and capital alignment.
He said to keep within their carbon budgets, estimated by the International Energy Agency (IEA), oil majors must stop fossil fuel expansion immediately. He admitted that many had “massive expansion plans” and reiterated that Border to Coast would “escalate” depending on the response from them.
Baines said divestment could be used as a last resort as it forms part of its engagement escalation policy. As part of its climate engagement work, Border to Coast has also committed to ensuring a just transition.
The pension pool is also targeting banks as it sets Scope 3 – carbon emissions created in a company’s value chain – in its sight.
“They [Banks] are so key to the transition given their size and influence,” Baines explains. “Right now, our targets for emissions cuts within the portfolio fall within Scope 1 and 2.
“As our targets move to include Scope 3, at that point the emissions coming from banks are going to increase 100-fold easily. So, we’ve got our eye on Scope 3 risk and we’re starting to integrate it to be reflected in our engagement and voting policy”.
Border to Coast will vote against the Chair of the Sustainability Committee at banks where the company has materially failed the first four indicators of the TPI framework for the banking sector. This includes banks that have not sufficiently integrated targets, decarbonisation strategy, or climate policy engagement into business strategy.
These new expectations build on its voting record on climate in 2022. Border to Coast didn’t vote in favour of any “Say on Climate” proposals from oil majors last year as “they didn’t meet our expectations”, said Baines. It did vote for many independent resolutions on climate change, he added.