RI ESG Briefing, March 15: Shell moves forward on investor climate agreement

The round-up of the key ESG developments

Environmental

Members of the Climate Action 100+ engagement initiative have praised Shell for “showing progress in answering the call from investors to make their business consistent with the goals of the Paris Agreement”. The oil giant published its first three-year emissions reduction target in its annual report yesterday, pledging to deliver a reduction in the company’s Scope 1, 2 and 3 net emissions of 2-3% on a 2016 baseline. It also confirmed that remuneration for its top 150 executives will be immediately linked to delivery of the target. The announcement follows an agreement Shell and CA100+ investors made in December.
However, not everyone is so bullish on the news. Mark van Baal, Head of campaign Follow This, acknowledged that Shell was the industry leader on climate change, but said the short-term target was based on Shell’s long-term ambition, which is “not in line with the Paris Climate Agreement. Therefore, this target is by definition not in line with the Paris Climate Agreement”. ShareAction’s Senior Research Officer, Christian Wilson, pointed out that the pay of Shell’s CEO more than doubled in 2018, with the company citing climate action as a contributing factor. “We feel this reward is incommensurate with its level of climate ambition: at present, Shell plans to invest $1-2bn in low-carbon technologies and energy, less than 10% of capital expenditure. After a year in which profits increased 36% to $21.4bn, investors should press management on how they intend to spend this windfall.”
International Finance Corporation (IFC), sister to the World Bank, has created a new green loan product to “accelerate” the growth of the $33bn global green-loan market. It offers clients the option of structuring loans in accordance with IFC’s Green Loan Principles, which are themselves modelled on those created as part of ICMA’s Green Bond Principles.
BNP Paribas Asset Management has ramped up its exclusion policy on coal, with a commitment to exclude companies that derive more than 10% of their revenue from mining thermal coal and/or account for one percent or more of total global production. Energy firms whose carbon intensity is above the 2017 global average of 491 gCO2/kWh will also be excluded under the enhanced screening coming into effect in 2020. The new policy will apply to the Paris based firm’s actively managed “open-ended funds”, as well as becoming the “default policy for segregated mandates”, according to the release.
Speaking at a roundtable on sustainable finance this week, Margarita Delgado, Deputy Governor of Banco de España, a member of the Network for Greening the Financial System, said climate change risks affect the valuation of banks’ assets and balance sheets. Delgado said this should be monitored as part of “banks’ solvency under our supervision”, for which central banks should be urging banks to develop risk models that envisage climate change and developing stress tests based on scenario analysis.h6. Social

The World Bank has issued an IDR 500bn (€30m) sustainable development bond to promote women’s empowerment in rural areas, with a particular focus on UN Sustainable Development Goals one (zero poverty), two (zero hunger), and five (gender equality). Macquarie Investment Management was lead investor on the five-year Indonesian rupiah-denominated bond, with HSBC acting as the lead manager for the transaction. Proceeds from the bond will be used to “finance sustainable development projects and programs” in “middle-income and creditworthy lower-income” member countries but the investor presentation provides no specifics.

Governance

RobecoSAM was appointed official score provider for the ESG indexes of the Mexican Stock Exchange (BMV Group) provided by S&P Dow Jones. RobecoSAM is replacing the University of Anahuac and its associated body the Mexican Center for Excellence in Corporate Governance, which were managing the S&P/BMV IPC Sustainable Index.
RobecoSAM was also a partner in the Dow Jones Sustainability MILA Pacific Alliance Index, tracking the performance of companies from Chile, Colombia, Mexico and Peru. MILA stands for Mercado Integrado Latinoamericano, which integrates the stock exchanges of these four countries along the Pacific coast.
The UK Shadow Business Secretary Rebecca Long-Bailey MP and Shadow Chancellor of the Exchequer John McDonnell MP launched the last in a series of reports aimed at shaping the corporate governance policy of a potential Labour government. Prem Sikka, Professor of Accounting & Finance at Sheffield University, led the research work. The reports published so far are: “Regulatory Architecture to Enhance Democracy and Business Accountability”; “Reforming the Auditing Industry”; “Controlling Executive Remuneration: Securing Fairer Distribution of Income” and “A Better Future for Corporate Governance: Democratising Corporations for their Long-Term Success”, the latter a rebuttal of the shareholder value primacy theory, advocating for an stakeholder-centric approach to corporate governance.