HSBC to put coal phase-out plan to shareholders in ‘landmark’ win for investors

Round up: the latest on global ESG-related resolutions

HSBC, known as Europe’s second largest fossil fuel financer, announced today that it will ask shareholders to vote on a coal phase-out plan as part of a board-backed climate strategy proposal.

The banking group made the move in response to engagement by a $2.4tn investor coalition led by campaign group ShareAction. In January, that coalition, which includes investment heavyweights Amundi and Man Group, filed a proposal at HSBC asking how the bank planned to wind down its fossil fuel financing to bring it in line with the Paris Accord. 

It was only the second climate resolution ever to be put to a European bank. The first, filed at Barclays last year, also resulted in a counter-proposal. But, while campaigners criticised Barclays’ response, and the two proposals went head-to-head at its 2020 AGM, investors have withdrawn the resolution at HSBC, describing the counter-proposal as providing “landmark climate commitments”. If passed and enacted, it would see HSBC stop financing coal-fired power and thermal coal mining by 2030 in the EU and OECD, and by 2040 elsewhere. 

The proposal, which will be put to shareholders at its AGM on 28 May, also commits the bank to creating “a clear, science-based strategy with short and medium term targets to align HSBC’s provision of finance to the Paris Agreement goals”. If approved, the banking group would also have to report against the strategy and policies on an annual basis, starting with its 2021 annual report and accounts.

The investor coalition behind the engagement has warned HSBC of further action in 2022, “if it is unsatisfied with the bank’s implementation of the new commitments”.

HSBC’s ‘special resolution’ requires a hefty 75% support from shareholders to pass. But support for ESG proposals could get a boost, following the publication of a new guide on voting from the Principles for Responsible Investment’s (PRI) ahead of the 2021 proxy season. Making Voting Count, published this week, argues that investors should not view voting on proposals as “necessarily as part of an escalation strategy”, but rather as a tool “for clear, effective and accountable investment stewardship”.

UK based pensions body Pensions and Lifetime Savings Association has also published its 2021 stewardship and voting guidelines, strengthened, it says, to “reflect” the impact of the pandemic and new climate regulations. 

Do SEC ‘no-action’ rulings at Exxon hint that the US regulator is shifting under Biden?

US oil giant Exxon’s attempt to exclude a shareholder proposal on the risks of stranded assets has fallen on deaf ears at the US Securities and Exchange Commission (SEC) – a sign, perhaps, that the regulator could be shifting its stance on resolutions around climate change and transition risk under President Biden’s administration. 

Under Trump’s presidency, shareholders found it near impossible to file shareholder resolutions on the topic, particularly at US oil majors. Last year, the SEC batted away proposals at Chevron, ConocoPhillips and Exxon.

But could things be changing? 

Last month, the SEC also ruled against Exxon on climate lobbying, advising that the Texan oil titan should allow a vote on how its advocacy activities align with the goals of the Paris Agreement and outline any risks associated with “any misaligned lobbying”. 

That proposal was put forward by BNP Paribas Asset Management, which leads on Exxon as part of investor engagement initiative Climate Action 100+ (CA100+). 

The ‘stranded assets’ proposal was filed by US faith investor Christian Brothers Investment Services and asks Exxon to report by January 2022 on “how a significant reduction in fossil fuel demand, envisioned in the IEA [International Energy Agency] Net Zero 2050 scenario, would affect its financial position and underlying assumptions”.

Exxon unsuccessfully argued in its ‘no-action’ letter that it has already substantially implemented the resolution and that it is materially false and misleading. The ‘no-action’ process is the mechanism by which companies seek assurances from the SEC that it won’t take action if they don’t put a proposal to the vote.

Climate lobbying remains high on investors’ agenda 

Climate lobbying proposals, which did manage to get through the SEC during the Trump presidency, drew huge support last year – including at oil giant Chevron (53%) and Duke Energy (42%). That trend looks set to continue this year with a number of proposals being filed on Paris-aligned lobbying, including at General Motors, Phillips66 and Delta Airlines

Another lobbying proposal that has already survived the SEC ‘no-action’ process is at Citigroup. Co-filed by Greater Manchester Pension Fund in the UK, it calls for greater transparency to allow shareholders to see if the group’s lobbying aligns with its public statements around stakeholderism, climate change and racial equality. 

Another sign that the SEC is becoming more amenable to ESG orientated proposals is its decision to deny Citigroup’s attempts to block a shareholder proposal calling on it to undertake and publish an independently verified “racial equity audit”. The bank sought to avoid the proposal, which was put forward by US-based manager CTW Investment Group, despite its CEO Micheal Corbat, describing the fight against racism and the racial wealth gap as the “most critical challenge we face in creating a fair and inclusive society”, last year.

Staying with US Banks 

US non-profit As You Sow has withdrawn a climate proposal at JP Morgan Chase after the world’s biggest fossil lender promised to measure and disclose its financed emissions and set Paris­-aligned reduction targets. When asked if the huge shareholder support for a similar proposal last year had influenced JP Morgan’s decision, As You Sow’s President Danielle Fugere told RI, “absolutely, banks are feeling the pressure”. Fugere pointed to the number of Net Zero commitments being made by big US banks as evidence of this. 

As You Sow’s 2020 proposal on JP Morgan’s financed emissions was backed by an impressive 49.6% of shareholders. 

As You Sow is also behind proposals this year at Wells Fargo, Bank of America, Goldman Sachs and Citigroup, asking them to take immediate steps to “measure, disclose and, importantly, to reduce the greenhouse gas emissions associated with their financing activities”. 

First ever health-based resolution at FTSE100 firm prompts commitment

Last week, ShareAction secured another win for engagement after the UK’s largest supermarket Tesco announced a target to increase the proportion of healthier product sales to 65% by 2025. ShareAction and investors including Dutch asset manager Robeco are behind a pioneering proposal at the retailer, which calls on it to ramp up disclosure and set targets on healthier product sales amid the growing obesity crisis. It is the first ever health-based shareholder proposal to be put to a FTSE100 company. 

Also on health, in the US, the SEC has knocked back Coca-Cola’s efforts to exclude a proposal asking the beverage giant to produce an independent report on the financial and reputational risks it is exposed to as a result of the “changing scientific understanding of the role of sugar in disease causation”. In particular, the resolution, which was filed by California-based Harrington Investments, highlights the apparent links between obesity and diabetes and heightened vulnerability to Covid-19.