Climate change activists didn’t mind that Citigroup and Bank of America held their annual shareholder meetings online this year. Protesters still showed up at bank offices to rail against fossil fuel loans. Extinction Rebellion demonstrated outside Citigroup’s Tribeca headquarters in New York in late April. And at the same time, activists defied financiers entering the Bryant Park offices of Bank of America.
Apparently, the noise fell on deaf ears. Citi and BofA shareholder resolutions calling for banks to stop financing new fossil-fuel projects have gained less support this year than in 2022.
The change echoes a broader trend in other types of climate-related grades. Across corporate America, there are signs of skepticism about so-called Say on Climate votes asking shareholders to approve climate transition strategies, says Glass Lewis, a shareholder advisory firm. He says that while shareholders of US companies were among the first to propose a climate vote in 2021, none of those proposals passed, with support ranging from 7% to 39%.
“This skepticism appears to have turned into indifference, as there have been no shareholder submissions on this matter at US companies in 2022,” it said in a report in March. “The momentum around this issue is likely to have essentially ceased at North American companies for the time being.”
At this point in the annual meeting season, it’s too early to know whether support for other kinds of shareholder climate proposals has been weakened this year. But two years later the tiny hedge fund Engine No. 1 shocked the world In a win to elect directors to ExxonMobil’s board, early voting results suggest shareholder climate advocacy is not the force it was in 2021.
At the same time, investors have cooled to dedicated funds investing with environmental, social and governance mandates. In April, Goldman Sachs was warned that one of its ESG equity funds could be cancelled because it hadn’t attracted enough investors. And more generally investors they made billions from sustainable funds this year.
This is partly due to performance. For a decade, US ESG large-cap equity funds they were among the best performers in the stock market. But this year, ESG funds globally have underperformed the market as “ESG darlings” in clean energy have suffered in a flight to safety, AllianceBernstein said in a May 3 report.
In addition to performance concerns, some ESG-focused investors also target other asset classes. Up until now, stocks have been the bread and butter of ESG investors. There are now more alternatives for investors looking to make an impact.
“Most of the activity around sustainable investing is really happening in private markets,” Jonathan Hirschtritt, managing director of sustainability at GCM Grosvenor, said at an ESG conference last month in New York. Its Chicago-based alternatives manage about $74 billion in assets.
The supply of investable projects in clean and renewable energy has increased thanks to the climate incentives provided for by the US Inflation Reduction Act of 2022. And not a week goes by without a private equity firm launching a new impact investment fund an effort to take a slice of the sustainable investment market. This is despite political headwinds such as bans in states like Oklahoma, Florida and Texas on government pension funds invested with ESG mandates.
“Ignore what you read,” Michael Kashani, head of ESG credit at Apollo, told the ESG conference in New York. Despite negative ESG headlines in America, “largest increase in [ESG] questions comes from the United States”.
Securitization is another growth area in ESG. A few years ago, this was a novelty. Now, sustainable securitization is going mainstream, says asset manager TCW. The firm is seeing opportunities in solar panel leases that can be securitized and sold to investors who want diversity away from corporate issuers, while also prioritizing a sustainable focus, says Jamie Franco, co-head of sustainable investing at TC extension. The company is also talking to banks about asset-backed securities based on auto loans dedicated to electric vehicles.
There are pain points for sustainable investors in asset classes beyond equities. Investors have complained that reports on the impact of private funds remain considerably anecdotal without the metrics needed to assess how good investments are doing. The threat of “impact washing” – where companies claim they are greener than they actually are – cannot be addressed without better information than is required in public markets.
But for pension funds, endowments and family offices that increasingly require investments in support of ESG goals, there are at least more options.
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