The fight to phase out fossil fuels against disclosure

TotalEnergies of France this week made “a clean exit” from the Canadian tar sands in a $4 billion sale of its assets to Suncor, Canada’s second-largest oil company. It marks the latest divestment by European energy companies from Canadian oil, which is often associated with higher pollution levels than conventional production. BP also exited the Canadian oil sands industry last year. US companies have been far less willing to part ways with oil assets for environmental reasons.

This echoes the trend among US and European banks. European lenders, in particular HSBC extension, are moving away from fossil fuel projects. US banks have not and continue to come under fire from environmentalists for negotiating energy at annual meetings.

There’s more on this issue below in my report on climate shareholder proposals this week at four of the largest US banks.

And I also have news from the world of impact investing, where it is becoming increasingly difficult to be best in class. — Patrick Temple West

As pressure mounts to meet global net zero goals, carbon markets are in the spotlight. Approaches range from cap-and-trade compliance schemes to voluntary carbon markets and domestic carbon prices. Meanwhile, some argue that to reduce emissions at a sufficient scale and rate, carbon taxes are essential. The next FT Moral Money forum report will explore options and examine opportunities. And we want to hear from you. Are you in favor of carbon taxes? Can voluntary markets overcome quality problems? Will compliance markets do more to push businesses to decarbonise? Share your thoughts Here.

Environmentalists face impasse on phasing out fossil fuels over disclosure

Shareholders of Bank of America, Citigroup, Wells Fargo and Goldman Sachs this week voted on petitions calling for banks to phase out financing of new fossil fuel projects. These propositions didn’t do well last year, and support for them was even lower this year.

Fewer than 10% of shareholders supported these resolutions, the banks said. Last year, 11-12 percent of shareholders approved the phase-out calls.

“Once again investors have failed to align their vote with their stated positions on climate-related financial risk,” said Jessye Waxman, senior campaigner at the Sierra Club. Investors “need to go beyond disclosure requests only on climate issues at the banks’ annual meetings, he added.

But shareholder proposals asking banks to disclose more about their climate policies have actually fared better with investors. A first-time proposal from a Goldman Sachs shareholder called for the bank to provide a realistic climate transition plan for 2030, and won the support of 30% of the companies’ shareholders. The vote followed a similar proposal from Bank of America which garnered 28.5% support. (See our colleagues’ story on these votes Here).

“While Goldman is committed to aligning key sectors of its funding portfolio with net zero goals, its plan to meet those goals is unclear,” said Danielle Fugere, president of As You Sow, the advocacy group that has presented the petitions.

“This strong vote is a call to action,” he said. “Goldman Sachs has proven to be a leader in setting 2030 goals in line with global climate goals. Now comes the hard work of making his plan actionable,” he said.

Environmental activists appear to be at an impasse. On the one hand, they could ask banks to phase out fossil fuel projects and get around 10% support, not enough to push companies to change their behavior. Or activists could request transition information and plans, which appear to be favored by investors. The former approach conceivably garners climate action more quickly, but only if more shareholders are behind it.

Amid the political attacks on ESG in the US, “Wealth managers — more than ever — don’t want to be perceived as telling corporate executives how to do their jobs,” Lindsey Stewart, director of investment management research at , told me. morning star. “They want information on climate strategy, but they don’t want to set that strategy.”

The situation is very different on the other side of the Atlantic, where, as mentioned above, the institutions have shown greater action on the decarbonization drive. But it’s a bit like comparing apples and oranges.

“It’s hard to conclude that shareholder action on climate is hurting US banks relative to their international peers,” he said. “That pressure is playing out differently across the Atlantic.”

Next month, the bottom two of the six major US banks will hold their annual meetings – JPMorgan on May 16 and Morgan Stanley on May 19 – and both will face a similar set of climate proposals as their peers. (Patrick Temple West)

The unstable evolution of impact investing

In recent years, impact investing has evolved from a strategy for environmentalists to a growth opportunity for the world’s largest banks. Speaking at the bank’s annual meeting of shareholders earlier this month, then UBS chief executive Ralph Hamers said “client interest in impact investing is increasing significantly.”

But a chronic problem with impact reports is that they’ve been largely anecdotal. Impact reports from large financial firms tend to highlight some investment in a school or clean energy project, but the precise metrics are left out. For all the hype around impact investing, data is scarce and only a handful of companies have been identified as leaders in the industry.

In 2019, nearly 200 companies adhered to the principles of impact investing established by the International Finance Corporation of the World Bank. These fund managers, including Apollo, BlackRock and KKR, have agreed to have their impact management practices reviewed* by independent evaluators and to update the information annually.

According to BlueMark, a third-party verification firm, only six out of 60 companies sit in the top its impact ranking: Bain Capital, British International Investment, Finance in Motion, Leapfrog, Nuveen and Trill.

To earn a place in the rankings, these companies need to identify* how much their investments are helping society. How significant is the expected impact? On the other hand, companies must avoid ESG risks. Ultimately, companies need to have impact goals that are consistent and can actually be achieved.

You can read the 2022 BlueMark report for British International Investment Here.

“Our goal with the ranking release was to create a race to the top,” Christina Leijonhufvud, chief executive officer of BlueMark, told me.

Next month, BlueMark will update its ranking as four more names make the cut, he said. “We wanted to make sure this wasn’t a ticking exercise. It will become more difficult to break into the top quartile of impactful companies, she said.

As impact investing grows, even some big-name investors are seeing opportunities within rating companies. Last week, BlueMark announced that it had raised $10 million from S&P Global, Temasek and other investors.

“We see significant growth opportunities for impact investing in Asia and around the world,” said Dawn Chan, managing director of Temasek, Singapore’s state-owned investment fund. (Patrick Temple West)

Smart reading

The big oil companies are swept by opposing currents. They are under pressure to pump more, while also being urged to accelerate the shift to clean energy. Our editorial board explains how super majors can avoid getting stuck in the tide.

*Clarification: This story has been updated to better reflect BlueMark’s scoring process.