Preventable Surprises encourages the G20 to require investors to disclose AGM votes

| 3 September 2016
Blog & Articles

 

G20 leaders face a long list of pressing issues when they meet at their September summit, including the backlash against globalization and migration. While climate change could take a back seat, that would be a mistake. The Conference of the Parties in Paris committed to greenhouse gas reduction goals in order to reduce the economic and humanitarian dislocations of tomorrow by taking action today—yet action has been frustratingly slow.

A recent open letter to G20 leaders, signed by 130 of the world’s leading investors, is an important signal to governments that trillions of dollars of private sector capital is available for climate-change related investments. It is rare for institutional investors to speak out with such clarity on an issue as systemic as climate change. They are asking governments to, among other things, ratify the Paris Agreement in 2016, provide reliable and meaningful carbon pricing that helps redirect investment at the scale required, phase out fossil fuel subsidies, and demand corporate disclosure on climate change risks.

Investors are asking the G20 for leadership action. So the G20 might also ask investors what action they are taking to deliver this transition. Investor leadership that is “fit for purpose” on climate change today requires both fund managers and asset owners to exercise forceful stewardship, asking companies to publish transition plans to bring their carbon footprints and business models in line with COP21 objectives. As Mark Carney has said, investors have a right to know ‘what’s your strategy for net zero?’ and this is what Preventable Surprises would encapsulate as “<2°C transition plans”. To have impact across the most carbon-intensive sectors and to do this against a ticking clock, investors should support resolutions on an “industrial scale” of the most affected sectors, not just fossil fuels.

Such investor action does not require G20 political leadership but regulatory action, for example, ensuring investors disclose AGM votes, would make it much more likely. The SEC has set a useful precedent and this could usefully be extended beyond the US and include pension funds as well.

Results of the 2016 AGMs suggests that around 34% of investors need no prompting. This was the vote in favour of a 2°C transition plan resolution at Southern Company (a US utility corporation) in 2016. But more than 60% of institutional investors – what we have called the Missing60 – showed less commitment. These investors failed to support carbon disclosure resolutions at Chevron and Exxon-Mobil in 2016, having backed essentially similar resolutions at BP, Shell, Statoil and Suncor in 2015/6. In essence, they are unwilling to challenge the corporate view, even where this is clearly at odds with the commitments the G20 and others made in Paris.  We will know more about which investors make up the #Missing60 in the coming days.

While fossil fuel companies from many countries have expressed a willingness to align with COP21 targets, US oil and gas companies are conspicuously absent. A similar trans-Atlantic difference is clear in relation to the investor letter to the G20. Several global fund managers – Amundi, AXA IM, BMO Global Asset Management, BNP Paribas Investment Partners, Danske Bank Asset Management, Deutsche Asset Management, HSBC Global Asset Management, L&G Investment Management, Mirova and Old Mutual Global Investors – have signed. In contrast, many large managers headquartered in the USA – e.g. Blackrock, Fidelity Investments, State Street Global Advisors, T Rowe Price, the Vanguard Group and Wellington Management Company – are missing from the list of signatories.

When investors act within their sphere of control and take forceful stewardship action, they will send powerful signals to corporations and the public at large that they taking their share of the burden of preventing devastating climate change. By doing this, they will have even more influence with G20 governments than they do today. But if they stand on the sidelines, they pose a systemic risk not just to their own clients and all those end beneficiaries but also to the world at large. Asset owners who use these managers, and investment consultants who recommend them, have every reason to ask for a detailed explanation.

 

Carolyn Hayman OBE (Chair) and Raj Thamotheram (Founder & CEO),

Preventable Surprises, London, 3rd September, 2016.