With just 10% of the world’s largest emitters lobbying in alignment with the goals of the Paris Agreement, investor concern continues to grow over the influence of ‘dark money’ on the fight against climate change.
Ed Collins, Director of Lobbying and Corporate Influence at think-tank InfluenceMap, says that while “a lot of companies made statements of support for Paris, especially around the time of the Agreement, there has been a trend where companies say one thing, but when you look at their detailed lobbying behaviour, and also the lobbying behaviour of their industry associations, something very, very different is happening.”
Johan Floren, Head of ESG at Swedish pension fund AP7, agrees, and says this translates into investment risk. “The Paris Agreement has to be transformed into national legislation, so if there are companies around the world trying to stop that through their lobbying, it creates systemic risk,” he says.
Floren has been leading the pushback against such lobbying by portfolio companies. In 2016, AP7 kicked off a three-year project on the issue, centred on voting and engagement.
He describes the start of the project as a “lonely journey”. “When I was speaking with other investors, there was no argument that this kind of lobbying was a bad thing, but they felt it was more of a political issue, not something for investors to take on and not something that had a direct impact on the performance of their portfolios,” he explains. “We thought the opposite: if you’re a universal owner, then this is absolutely your topic because it’s about systemic risk”.
That viewpoint has now caught on, with big names like the Church of England Pensions Board, Local Government Super, CalSTRS and CalPERS joining the campaign. As a result, resolutions on climate lobbying have been some of the greatest victors at recent company AGMs. Last year, a proposal at Chevron filed by BNP Paribas Asset Management passed on its first appearance. 42% of shareholders backed a vote at Duke Energy. A proposal at Santos was backed by 46.35% of investors after Glass Lewis and ISS recommended a vote in favour. A similar proposal at Origin Energy in 2018 got 46.32%.
In 2018, the focus moved to European companies, and members of the project used Influence Map data to identify 17 companies lagging on climate lobbying – including Repsol, Equinor, Shell, BP and BASF. They filed shareholder resolutions asking them to disclose which organisations they are part of, how much they pay them, and how aligned their lobbying policies are on climate. If there are significant differences between the company’s standpoint and that of the trade association, then investors want to know what they will do about it.
Floren describes the response from companies as “really good”, saying that most agreed to the requests before they got to the AGM, prompting widespread withdrawals of proposals.
‘If you’re a universal owner, then this is absolutely your topic because it’s about systemic risk’ – Johan Floren
Momentum on the topic is now gathering in the US, where the number of proposals filed this year has tripled from 2020.
Climate Action 100+ members, including CalSTRS, the New York City Comptroller and Boston Trust Walden, wrote to 47 of the largest US emitters in October, calling on them to align their lobbying with the Paris Agreement and improve transparency. The letter warned the companies to expect greater action on Paris-aligned lobbying in the 2021 proxy season.
Since then, 13 proposals have been filed. Seven of these were coordinated by the Interfaith Centre on Corporate Responsibility, whose members have reached agreements with five companies and consequently withdrawn their proposals: Entergy and American International (both filed by the US Presbyterian Church), First Energy (Nathan Cummings Foundation), CSX (the Unitarian Universalists), Duke Energy (filed by Mercy Investment Services). Mercy Investment Services has also withdrawn a proposal at Valero after reaching an agreement with the company.
CalSTRS has filed a Paris-aligned lobbying proposal at Phillips66 – the company it coordinates shareholder engagement for on behalf of CA100+ members. It told RI: “We recognize that corporate lobbying activities that are inconsistent with the goals of the Paris Agreement present financial, legal and reputational risks to investors like us.”
And while the stage has been set for a high-profile showdown between Exxon and activist investor Engine No.1 this AGM season, over board nominations, another proposal from BNP Paribas Asset Management will also make its debut. BNP was the only investor to file proposals on Paris-aligned lobbying last year in North America (none were filed in 2019), but its 2020 attempt to file at Exxon was dashed when the US Securities and Exchange Commission allowed the firm to omit the resolution. Exxon’s attempts to block the proposal this year have been unsuccessful.
Michael Herskovich, the asset manager’s new Global Head of Stewardship, is “hoping to have similar results” to those achieved at fellow oil major Chevron.
BNP Paribas AM has also refiled a proposal at airline Delta after last year’s resolution got 46% of the vote. Its proposal at United Airlines in 2020 landed 31% support, but it no longer owns shares in the company due to changes in its indices, so the US Presbyterian Church has refiled a resolution there.
Outside of the US, Rio Tinto is facing another resolution on lobbying, this time from the Australasian Centre for Corporate Responsibility. It wants the firm to review the advocacy of its industry associations and suspend membership of groups found to be lobbying inconsistently with the Paris Agreement. In an unprecedented move, Rio Tinto has recommended that its shareholders vote for the proposal, as well as a proposal on GHG emissions and target performance.
The mining company said that it already reviewed its membership of industry associations, and reported annually on “areas of inconsistency with the Paris agreement”. It continued: “If we identify significant differences in climate-related policy or advocacy, we will consider suspension of membership. Our starting position, however, is that our objective of securing advocacy aligned with the Paris Agreement is best pursued from a position of influence from within such associations”.
Just today, Norwegian oil company Equinor announced that it will leave the Australian Petroleum Production and Exploration Association after its 2021 review of industry associations identified major misalignments between the two on climate policy.
‘Our objective of securing advocacy aligned with the Paris Agreement is best pursued from a position of influence from within such associations’ – Rio Tinto
In the future, investors and companies will have a single set of expectations on climate lobbying, as CA100+ prepares to launch a global standard in June. The framework – which has been developed by investors in dialogue with companies – will include high-level principles alongside more granular indicators that firms should report on. Floren says it will be used as a universal engagement tool, and will inform investors about when they need to escalate their efforts and start tabling shareholder resolutions.
“It’s pretty amazing, because five years ago this was not even on the agenda,” says Floren. “We’ve gone from that, to one of the top priorities for CA100+ investors.”
It’s not just climate lobbying that has caught investors’ attention. 2021 will also see proposals asking for disclosure on lobbying policy and costs more generally, as well as membership of organisations which write legislation and lobby individual states to implement it. Resolutions have been filed at Amazon, by Newground Social Investment; and Citigroup, by Miller/Howard Investments and the Greater Manchester Pension Fund. A proposal at engineering firm AECOM passed with 54.6% of the vote in February, with less successful votes at Tyson Foods, Disney and healthcare firm Maximus (17%, 33% and 37% support, respectively).
Racial justice has also made a first appearance among lobbying proposals this proxy season, with a resolution from the Nathan Cummings Foundation asking US retailer BestBuy to report on how its lobbying efforts align with the goal of embracing equality and justice and fighting against systemic racism. The Foundation filed the proposal after BestBuy was accused in an October report by non-profit Public Citizen of having funded 10 industry groups that lobbied against state criminal justice reforms, despite having issued a statement on the importance of racial justice following the death of George Floyd last year.
According to Laura Campos, Director of Corporate and Political Accountability at the foundation, the proposal was filed as a test case. “We chose to focus on the company that was most obviously misaligned”, she says.
Campos said that the proposal led to “some really productive conversations” with BestBuy, and that it has now been withdrawn after the retailer agreed to conduct and publish an independent evaluation of how its lobbying activities align with its publicised goals on social justice and racial equality.
Following the Foundation’s success at BestBuy, it believes that racial justice lobbying proposals are likely to appear in greater numbers in the coming years. “I don't think this is a fad with investors,” says Campos. “I think there's really strong recognition that this is a systemic problem and that it actually is very harmful for companies and the economy”.