Many of the world’s largest institutional investors failed to support a shareholder resolution at ExxonMobil earlier this year, placing them at odds with their commitments as signatories of the Principles for Responsible Investment (PRI) – according to research carried out by the Asset Owners Disclosure Project (AODP).
The report also points to what its authors call a “crisis of accountability” at pension funds, claiming there were around 1,000 ignored letters from members and beneficiaries asking institutions to support climate-related resolutions at Exxon and asking how their fund intended to vote.
The AODP’s report comes after a coalition of investors, led by Edward Mason, Head of Responsible Investment for the UK’s Church Commissioners, submitted a shareholder resolution to Exxon asking the oil major to report on how its business model would be affected by efforts to curb the effects of global warming. Based on the ‘Aiming for A’ climate campaign, which received almost unanimous shareholder approval at BP and Shell’s AGMs last year, the Exxon resolution received 38% backing, despite many institutions pledging their support.
Mason described the final result as “not acceptable”, on the basis that asset managers should have used their voting power responsibly.
AODP’s ExxonMobil Investor Engagement Report has now revealed that several of the world’s biggest investors, including BlackRock, Vanguard and the Bank of New York Mellon, failed to back a similar resolution in 2016, despite being signed-up to the UN-supported PRI.
The PRI requires signatories to incorporate ESG factors into their investment decisions. One binding principle states: “We will seek appropriate disclosure on ESG issues by the entities in which we invest.”
At the organisation’s annual Signatory General Meeting, held this week in Singapore, the PRI’s Managing Director, Fiona Reynolds, confirmed that the body would de-list signatories that do not show demonstrable progress in implementing its principles.
AODP’s report also shows that a relatively small number of Exxon investors hold a large amount of voting power: Vanguard (6.6%) and BlackRock (4.9%) both supported Exxon over the climate change resolution, while State Street Global Advisors (4.5%) backed the Church Investors. Only four other investors own more than 1% of the company, and none more than 1.5%.Julian Poulter, AODP CEO, said that the report illustrated a “split asset management community” on the back of the Exxon litmus test.
“Shareholders have a right to know how Exxon plans to manage climate risk,” he added. “Asset managers and asset owners who helped Exxon defeat this modest climate resolution are not only risking their own money, they are betraying the millions of ordinary people whose pensions are invested in Exxon stock.”
“Our analysis also reveals disturbing hypocrisy, with many investors ignoring responsible investment commitments they have made.”
BlackRock in particular has been accused of not ‘walking the walk’ when it comes to its environmental commitments: earlier this year, the fund’s founder Larry Fink warned CEOs in a letter that climate change has “real and quantifiable financial impacts”, while a report penned by the firm’s vice chairman, Philip Hildebrand, and global head of impact investing, Deborah Winshel, said this week that investors “can no longer ignore climate change”. The report, Adapting Portfolios to Climate Change, outlines the various financial risks inherent in several industries and argues that investors have a duty to incorporate “climate change awareness” into their processes.
BlackRock told RI: “We prefer to engage with companies directly on complex issues such as adaptation to a low-carbon economy. We have engaged extensively on a range of issues related to the themes of these shareholder proposals. Where a company is unresponsive, we hold board members accountable.”
Though Poulter said he welcomed any large fund manager who calls for an improvement in how asset managers consider the risk of climate change, he added that BlackRock’s statements and actions “do not tally”.
“What BlackRock is saying is it thinks it can garner influence at companies through the ‘cosy lunch’ strategy,” he continued. “That doesn’t match up with what signatories of the PRI are expecting. We are not going to engage our way out of climate change if investors are not consistent in their voting strategy.”
The AODP report also revealed that 99% of US pension funds failed to reply to their members’ requests to engage with Exxon to manage climate risk. A total of 1069 pension funds – of which 136 are PRI signatories – in 52 countries were contacted, but 85% of pension funds in Europe, 83% in Canada and 82% in the Asia-Pacific region failed to respond.