When the world’s two largest money managers, BlackRock and Vanguard, threw their weight behind a successful 2°C scenario resolution at Exxon last spring, the media hailed a shift in attitudes toward climate risk and, more specifically, the risk of assets being stranded by the need for rapid emissions reduction. Preventable Surprises has released a report scoring the ten largest investors in utilities on their proxy voting record in the sector. It highlights the contradiction between the Exxon vote and those cast in the utility sector, the largest source of greenhouse gas emissions in the US. BlackRock and Vanguard voted against 2°C resolutions at all nine US utilities targeted by shareholders for increased climate risk disclosure. In response to our questions, both asset managers provided statements expressing a preference for private engagement over public proxy votes.
Private engagement lacks accountability, transparency, or metrics. That is why the Task Force on Climate-Related Financial Disclosure (TCFD) recommended this year that all publicly traded companies provide the level of transparency sought in the 2°C scenario resolutions, which ask companies to disclose how they are managing the risks and opportunities that arise from aligning with the Paris Agreement. The TCFD is seeking to reduce systemic risk in financial markets–a goal shared by Preventable Surprises. It is alarming that the two largest utilities investors could not find a single US utility where climate risk management was weak enough to merit public support for a 2°C resolution. Many coal-dependent US utilities have not only resisted the transition to renewable generation (which is both cleaner and now cheaper in many markets), they also have fought government policy aimed at reducing emissions.
Private engagement does not work in a sector where coal plants are subsidised by ratepayers in highly regulated states, increasing the risk of stranded assets. Fiduciary responsibility dictates that both portfolio risk and planetary risk require more forceful stewardship than the largest investors have shown to date. We hope the owners of the assets managed by Vanguard and BlackRock use this report to discuss with their managers how they are assessing risk in the most fossil fuel-intensive sector in America.