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Will Shareholders Use their Say on Climate Wisely?

Jeanne Martin, Senior Campaign Manager at ShareAction, says investors should think carefully before backing banks’ net zero strategies.

Last week more than a fifth of UBS’s shareholder base voted against management on its net zero plan. The bank had tried its best to rush through an inadequate plan – leaving less than a month for shareholders to analyse it.

This tactic backfired. Whilst the plan received majority support, it received the lowest level of any management-backed proposals at the AGM and the lowest voting result on any Say on Climate plans so far – even lower than the plans of fossil fuel giants such as Glencore (94.4%) and Shell (89%) received in 2021.

This should send a signal to the board of UBS and the rest of the European banking sector that half-baked commitments won’t do for a growing faction of the investment community.

However, not everyone seems to be on board with this agenda.

More than 75% of UBS’s shareholders still voted for the bank’s plan, despite its many weaknesses. For example, UBS had failed to update its coal, oil, and gas policies ahead of the vote – making it one of the few mainstream European banks that has not committed to phase out from coal by a specific date. It also failed to include capital markets activities in the scope of its disclosures and targets – despite these representing 93.4% of its financing to top oil and gas expanders.

Furthermore, last year, ShareAction showed that the asset management industry is still largely failing to use its voting power to drive better climate performance from listed companies. This includes asset managers that have committed to net zero and/or joined initiatives such as Climate Action 100+ and the Net-Zero Asset Manager Initiative (NZAMI).

This is, quite simply, not good enough.

Asleep at the wheel

The latest IPCC report has made clear the scale of transformation that is required of the financial sector if we are to limit warming to 1.5°C. For a 50% chance of achieving that goal, global use of coal, oil, and gas in 2050 must decline by about 95%, 60% and 45% respectively compared to 2019, while investment in mitigation and adaptation must increase six-fold. Yet, the report states plainly that “finance flows for fossil fuels are still greater than those for climate adaptation and mitigation”.

Banks are a critical source of these financing flows. Investors that have been asleep at the wheel must now wake up and use their voting rights to drive the changes that we need.

There remain many opportunities for them to do so during this AGM season. A handful of other banks have offered votes on their net zero plans, including Barclays (04/05), NatWest (28/04), and Standard Chartered (04/05). We are of the view that several of these plans present important gaps that the banks need to address before shareholders can endorse them.

For example, one of the three pillars of Barclays’s climate strategy is ‘financing the transition’. Yet the bank will only provide an update on its green financing strategy later in 2022, once investors have already cast their vote.

Furthermore, despite being Europe’s largest fossil fuel financier, the bank has not updated its oil and gas policy despite repeated requests from investors since at least 2019. Investors are thus asked to vote on one of the weakest oil and gas policies amongst European banks. As such, we are of the view that shareholders should vote against the bank’s plan.

Investors will also be invited to vote on important shareholder resolutions. For example, a €2.2 trillion coalition of 11 institutional investors including Amundi, LGPS Central, and PUBLICA, the Swiss federal pension fund, and co-coordinated by Ethos Foundation and ShareAction, recently filed a resolution at Credit Suisse.

In 2021, the bank was the second largest European fossil fuel financier relative to its size. Yet its coal policy would benefit from further transparency, its oil and gas policy currently lags behind leading practice in the sector, and its climate risk disclosures and targets fail to include capital markets activities, which constitute the bulk of its financing to top oil and gas expanders.

Time to act

There has never been a more urgent time to act. 2021 saw a myriad of heatwaves, floods, and megadroughts. These climate disasters brought misery to millions across the world – and have led to important financial losses. For example, according to insurance company Aon, 2021 is likely to be the fourth time in five years that global natural catastrophes have cost more than US$100 billion.

Finally, the war in Ukraine has highlighted the need to phase out from fossil fuels, not only to avert climate change, but to reduce the power of authoritarian petrostates.

“There is now significant evidence to show that hydrocarbons are now just environmentally unsustainable, but that they weaken the social, political, and economic fabric of our world too,” recently said David Blood, the co-founder of Generation Investment.

Shareholders of banks have a choice this AGM season: will they use their voting influence to lock us into decades of unnecessary carbon, or to accelerate a transition away from fossil fuels and towards a cleaner, safer future?

We call on them to use their influence wisely.

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