CA100+: The missing Big Three, the free riders and the overlooked ‘grassroots’ investors

Could a new model of collaboration herald more ambitious outcomes?

Climate Action 100+ this week published the first progress report of the herculean task this group of investors have taken upon their shoulders: save the planet with people’s money within a financial system that doesn’t always put citizens’ interests first.

It is worth stating the obvious: behind any asset class, there’s possibly the accrued pensions and lifetime savings of ordinary people.

The acknowledgment from the 373 investors representing $35trn assets under management that tackling the climate emergency should be at the core of investors’ fiduciary duties is perhaps a welcome statement.

How those fiduciary duties are interpreted, is a different matter altogether. For instance, in the divestment vs engagement debate, CA100+ is firmly in the latter camp.

Their bet is on engagement at a global scale in multiple sectors (beyond fossil fuels) with the world’s systemically important carbon emitters, the famous SICEs (‘sickies’) – although that term was later dropped.

An initiative of this sort has never been tested before. No doubt, it deserves praise. And indeed, the story has captured the imagination of mainstream media.

On the back of Extinction Rebellion/Greta Thunberg, it’s seen as: investors to the rescue.

The five-year engagement strategy will be halfway through next AGM season, and before we know it, the 161 companies targeted will have proved whether they are part of problem or the solution.

For the time being, CA100+ can report “commitments, ambitions and aspirations”. Good intentions which at most translates into “short-term targets” to achieve those long-term aspirations, like the statement achieved from Shell.

Looking at the whole picture, of the 161 SICEs, the CA100+ report explicitly features developments worth mentioning in around a third of them, 49 companies.

CA100+ said in a statement this week that “investors are cognisant of the significant progress that still needs to be seen from focus companies”.

Arguably, that applies to investors too. Apart from the missing Big Three (BlackRock, State Street and Vanguard), absent from the signatories is Norges Bank Investment Management, the manager of Norway’s $1trn Government Pension Fund Global.

But in addition, CA100+ might face a sort of free-rider problem, with a reduced number of participants doing the heavy lifting and the rest taking advantage of their efforts, according to market sources who preferred not to be named.

If all the investors were to be assigned a company, the ratio would be 2.3 signatories per company. Obviously, not all investors and companies are the same.

According to CalPERS’ Anne Simpson, who is a CA100+ steering committee member and an influential figure in the initiative, those who volunteer as lead engagers are selected on the basis of their size, scale, capacity and knowledge “to take on the right companies in the right markets”.

There are two types of CA100+ signatories: participants (“responsible for engaging with companies directly” and supporters (who “publicly support the initiative, its goals and objectives”). Considering this, the ratio would be 1.5 investors per company.

Back in April, nine civil society organisation involved in responsible investment called on CA100+ to enhance its transparency and publish a list of lead investors.As Tracey Davies, Executive Director of Just Share, told RI: “Their processes are fairly opaque, of course they say there are good reasons to that, but people on the outside can’t really tell what’s happening or who is responsible for what.”

The report published this week only discloses 14 lead investors, for 11 companies. (See list below)

In a response letter to the civil society organisations, CA100+ gave three reasons for not making the list public.

“They do engagement, we file resolutions. That’s an excellent division of tasks.”

First, confidentiality: “The fact of participation may be taken to disclose their shareholding or the importance of an investment position to their investment strategy.”

Secondly, effectiveness of the engagement: “Disclosing participants in each engagement could undermine these dialogues.”

Thirdly, choice: “Some investors have expressed a preference to remain anonymously involved in engagement groups.”

The fact that those names aren’t made public, might be fuelling CA100+’s free-rider problem.

Another suggestion from the civil society organisations was to use “proxy voting rights robustly now, rather than waiting until the end of the five-year term” — as well as calling for disclosure about how CA100+ investors voted at those 161 companies.

Two examples from this AGM season might show that improvement could be made in this area.

It is perhaps surprising that Northern Trust – which is not only a supporter, but a participant in the initiative – voted against one of the most critical resolutions this year. This was the independent chair proposal at Exxon, which became a focus in lieu of the climate resolution that the company was able to dodge.

A second example, where a vote against a director on climate grounds would have been justified is that of Duke Energy’s Daniel DiMicco. Duke is one the electric utilities on the focus list.

According to Majority Action, DiMicco publicly ridiculed efforts to reduce carbon emissions, claiming in 2015 that they were not a serious problem but rather a “Gov’t $$$$ grab.”

Pending the publication of voting records, a fair assumption is that the majority of CA100+ holding Duke’s shares might have voted for DiMicco, which is one the electric utilities on their focus list. Simpson says: “The climate denier is clearly not having much influence”.

CA100+ reported the following about the company: “[It] agreed to eliminate carbon emissions from its power plants, potentially using offsets to reach net zero by 2050. Duke will transition from coal and invest in solar, nuclear and other carbon-free technologies, as well as natural gas, during the transition.”

Simpson says: “The issue of holding the board accountable is definitely in the mix. But how each investor decides how to vote will be based on their own internal policies.”

She notes that CA100+ is not registered and regulated as a proxy voting adviser in the US.

“We are very aware that the number of investors signed up for CA100+ is now so large that we have some signatories wanting to be careful about concert party rules in their own market.

“If you want to tell another voter how to vote in the US, you have to carry out a proxy solicitation. But then each investor makes their own decision. Just for fiduciary purposes, one investor cannot tell another investor what to do.”

Simpson adds that, of course, there is the right of free speech and people can comment on which directors are worthy of re-election. “That debate is vigorous and ongoing,” she says.

Another point the civil society organisation made was to “urge CA100+ signatories to support climate-related shareholder resolutions filed by smaller shareholders and civil society organisations at target CA100+ companies”.

In particular, they said, CA100+ should commit not to stand in the way of more ambitious proposals.

A couple of cases, BP and Shell, might illustrate such an overlap and perhaps the need for more collaboration between the two groups.

Back in 2016 no one would have imagined how far Follow This, the Dutch climate change shareholder group, was going to get at influencing change at Shell’s board.

Just a year and half later, its second Scope 3 shareholder proposal garnered the support of 6% of shareholders (plus 5% of abstentions), which sent seismic governance waves to the board.

In November 2017, a month before CA100+ was formally launched, Shell was announcing at its Management Day a Scope 3-related ambition aimed at reducing “the net carbon footprint of its energy products”. Shell, however, had dismissed the shareholder proposals as “unwise” and “unreasonable” in 2016 and 2017.

None of this work has been acknowledged in the CA+100 progress report, which features a case study on Shell.

Follow This extended in 2018-19 its campaigns to BP and Equinor, which achieved respectively support of 8.4% and 12% (excluding the Norwegian government shares at Equinor).

At the same time, CA100+ this year agreed a climate shareholder proposal with BP, which passed with 99% of the votes, albeit with no decisive mention of Scope 3 targets.The founder of Follow This, Mark van Baal, tells RI that the only way to stop climate change is if oil majors commit to Paris, and they can only commit to Paris if their ambition covers Scope 3 targets.

“During the AGM, BP’s Chairman and CEO repeated that their strategy, which doesn’t include Scope 3, is backed by more than 300 investors. If BP takes some kind of responsibility for Scope 3 emissions this year, it will be thanks to the investors who voted for our resolution,” Van Baal says.

Asked whether there is collaboration between CA100+ and Follow This, Van Baal says: “We had the same resolution ready to file at Exxon but we didn’t go ahead because CA100+ told us they were going to file.”

While he considers that CA100+ approach might be slowing down progress for oil and gas majors to get Paris-aligned, he doesn’t see their respective activities as mutually exclusive:

“They do engagement, we file resolutions. That’s an excellent division of tasks.”

In that regard, the recent collaboration between the Australasian Centre for Corporate Responsibility (ACCR) and three CA100+ investors (Church of England Pension Board, ACTIAM and MP Pension) co-filing a resolution at BHP could herald a new approach for the forthcoming AGM seasons.

Anne Simpson remains optimistic despite being “on the foothills of a very long climb” which is not for the “faint-hearted”. She says: “We have humility but we also have ambition.”

CA100+ participants disclosed in the progress report:
Shell: Robeco, and Church of England Pensions Board with support of Eumedion;
Origin: First State Super Investors;
Rio Tinto: AustralianSuper and CCLA;
Maersk: MP Investment Management and Hermes;
Volkswagen: Hermes and BMO;
HeidelbergCement: RPMI Railpen;
AES Corporation: Mercy Investment Services;
Nestlé: Ethos and APG;
PetroChina: Hermes;
General Motors and Ford: New York City Comptroller and BMO.