Record breaking votes, divisive climate pledges and new engagement trends have defined responsible investment in 2020
RI’s voting and engagement expert Paul Verney takes a look back at the big moments for shareholders over the past 12 months
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In a year when social issues shot up the investment agenda on the back of the Covid crisis, it was still climate change that dominated engagement efforts in 2020.
Having been hit with shareholder proposals calling for Paris-aligned targets, Europe’s largest oil majors have one by one unveiled 2050 net-zero ambitions this year. While many investors have seen the announcements as a sign that engagement is really working, some have been less convinced - Sarasin & Partners warned in May that, without more detail, the commitments remain “empty promises”. And with a new (and already successful) investor-led campaign to get companies to introduce votes on their climate strategies at annual meetings, the fleshing out of these high-level ambitions will come under even more scrutiny in 2021.
In the US, investors again found it near impossible to file shareholder resolutions on climate change at oil majors this year, with the Securities and Exchange Commission (SEC) batting away proposals at Chevron, ConocoPhillips and Exxon. Illuminatingly, the regulator allowed a proposal by right-wing commentator and climate sceptic Steven Millloy to make the ballot at Exxon, despite the Texas-based firm’s attempts to exclude it.
But in other parts of the world, voting records were smashed. Calls for Paris-aligned targets at Aussie oil & gas giants garnered 50.16% support at Woodside and 43% at Santos - becoming the largest shareholder-backed proposals in Australian history.
Those votes were undoubtedly buoyed by the advice of the two biggest proxy advisors ISS (now owned by Deutsche Boerse) and Glass Lewis, who crucially supported both proposals in their main advice to investors. 2020 has really highlighted the influence of these players over voting results, and raised questions around their consistency. Despite mirroring the resolutions at Santos and Woodside, Glass Lewis supported none of the Paris-alignment proposals at European oil majors, and ISS was patchy in its recommendations - supporting the requests at Equinor, while opposing the same ones at Total and Shell. The result? Shareholder support was much lower for votes at those European firms than for their Australian peers (although still significantly higher than in previous outings), with a top rate of 27% at Norway’s Equinor.
Directors in the crosshairs over climate
The blocking of climate proposals in the US by the SEC has contributed to the growth of another big trend in shareholder voting this year: the targeting of directors. US and UK pension funds kicked-off two high-profile shareholder campaigns this year, targeting directors at JP Morgan Chase and Exxon over their competence to navigate the climate transition.
It’s a trend that looks set to continue into 2021, with recent announcements by EOS, the engagement arm of Federated Hermes, and investment behemoth BlackRock that they will be targeting directors at climate laggards. Californian public pension giant CalSTRS and the Church of England’s pension fund have also thrown their weight behind a new effort by activist investment firm Engine No.1 to “refresh” Exxon’s board to make it fit for the energy transition.
Banks also found themselves in the spotlight
As pressure mounts on companies to address their indirect carbon emissions, banks have seen themselves on the receiving end of resolutions relating to their fossil-fuel lending, with pioneering proposals filed at Barclays and Mizuho this AGM season.
The proposal at Mizuho, which called on the banking giant to publish a plan to align its coal-heavy financing with the goals of the Paris Agreement, was the first ever climate resolution to be filed in Japan – and received significant support of 34.5%.
Barclays became the subject of the first shareholder proposal on climate to be filed at a European bank, asking it to set targets to wind down its financing of fossil fuel firms not aligned with the Paris Agreement. The UK banking group’s board, however, took the unprecedented step of countering with its own, less ambitious proposal, which passed at AGM (the shareholders’ one did not).
In the US, banking heavyweights Wells Fargo, Morgan Stanley, Goldman Sachs and Bank of America all avoided a climate proposal after committing to “testing and measuring the footprint of their finance emissions”. From a list of big banks targeted by US non-profit As You Sow, JP Morgan Chase - the world’s largest fossil fuel financier - was the only one that didn’t make such a commitment. The resulting resolution achieved huge support of 49.6% at the bank’s annual meeting. As You Sow has already filed proposals for the 2021 AGM season at JPMorgan Chase, Wells Fargo, Bank of America and Goldman Sachs.
Lobbying remains a key issue
Some of the biggest shareholder votes in 2020 have been on corporates’ direct or indirect lobbying activities around climate change, including at Santos (46%), Chevron (53%) and Duke Energy (42%). Norway’s largest private asset manager, Storebrand Asset Management, gave up engaging with five companies this summer, after losing patience with their continued anti-climate lobbying efforts. It divested oil firms Exxon and Chevron, Anglo-Australian miner Rio Tinto, US gas utility Southern Company and German chemical firm BASF as a result.
And lobbying looks set to remain one of the biggest engagement topics going into next year. BNP Paribas Asset Management and Swedish pension fund AP7, who spearheaded an investor collaboration together with the Church of England Pension Board on the lobbying activities of Europe’s biggest emitters, are currently developing a framework to define responsible climate lobbying, expected early 2021.
Emergence of sovereign engagement
Tackling ESG topics in sovereign bond portfolios has traditionally been considered too tricky for many responsible investors, but 2020 has seen a new approach being adopted. At around the same time Storebrand gave up engaging with those five companies over lobbying, it stepped up engagement with the Brazilian Government, working with pension fund KLP to convene pioneering discussions over the deforestation of the Amazon rainforest, which resulted in a commitment by the country’s politicians to address the issue.
The precedent has led some investors to predict that engagement with governments over sustainability issues is likely to become more prevalent.
Social still overlooked, despite covid talk
Despite the rhetoric about the pandemic increasing the focus on the ‘S’ of ESG, there was no change in voting behaviour when it came to human rights resolutions before and after the World Health Organisation declared the pandemic in March, ShareAction recently found.
But there were encouraging signs elsewhere, perhaps. Almost 80% of shareholders supported a resolution calling for disclosures on human capital management at US auto parts company Genuine Parts. Another big vote was the 51% support for the proposal at Chipotle Mexican Grill, which asked the US fast food chain to report on its use of contracts that require employees to have grievances dealt with internally rather than through the courts - so called Employment-Related Arbitration.
In Canada, a C$2.3trn coalition of investors was set up this year to engage the country’s listed companies on making boards and senior management representative of the “racial and ethnic demography” of the country. And in the wake of the Black Lives Matter movement, 130 institutional investors signed the Racial Justice Investing coalition’s letter in June, which included a commitment to address systemic racism through corporate and policy engagement.
Speaking during a session at RI’s Digifest this summer, Jane Ambachtsheer, Global Head of Sustainability at BNP Paribas Asset Management, urged fellow investors to “think about... resolutions for next year [addressing] structural injustice and racism that we can tackle from an investment perspective”.
In a similar vein, Legal & General Investment Management’s Global ESG Manager, Maria Larsson Ortino, stressed that next year is when investors need to be ready to hold companies to account on what they did during the pandemic.
So, while climate change looks sure to continue to feature heavily in engagement and voting patterns in 2021, could it also be a pivotal year for social factors? Only time will tell.