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Hello from New York. Before we begin today’s newsletter, I want to mention some big developments on the Inflation Reduction Act, the Biden administration’s landmark green legislation. The government yesterday announced three organisations that have been awarded a combined $14bn from the National Clean Investment Fund, the first such funds awarded under this element of the IRA. More big outlays may follow as we approach the presidential election in November.
For today, I have a preview of the corporate annual meetings season, where the battle over environmental and social shareholder petitions is expected to intensify. Also today, Lee has a look at central banks’ lingering indirect support for fossil fuel companies.
Lastly, check out our new “right to reply” section, in which we’ll be highlighting some of the interesting reader responses in the Moral Money mailbag. If you’d like to see your insights featured in the newsletter — or simply give us a piece of your mind — drop us a line at moralmoneyreply@ft.com. — Patrick Temple-West
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Shareholder proposals
The proxy season forecast looks tense
The annual ritual between companies and their shareholders that is known as proxy season has taken on new intensity this year.
US oil major ExxonMobil in January sued two small shareholders to stop their climate change petition from going to a vote before the company’s investors at its annual general meeting. It was a rare lawsuit by a company against shareholders, and the case is being closely watched by the rest of corporate America. As of this writing, a Texas judge is still considering the case, but the ramifications are clear: shareholder petitions at annual meetings have grown from an annoyance to a threat worthy of a court battle.
The number of environmental and social shareholder proposals filed at US companies hit a record high in 2023, and that high volume is expected to continue this year, Institutional Shareholder Services said in an April 1 report. As has been the case in the past two years, the Securities and Exchange Commission is expected to take a laissez-faire approach to shareholder proposals, sources said. In 2021, the SEC said it would allow more environmental and social shareholder proposals to go to a vote, and indications are the agency will maintain this policy again in 2024, ISS said.
With more leeway from the SEC, environmentalists and human rights campaigners have become more aggressive with their shareholder proposals. These prescriptive petitions have strayed from routine disclosure demands that won support from shareholders in the past. For example, investors in 2023 filed shareholder proposals at the six biggest US banks to phase out new fossil fuel development. These shareholder proposals ultimately prompted Exxon to go to court, the company argued.
Since shareholder proposals have become more demanding — a trend set to consider this year — companies’ disclosures on environmental or social issues have generally improved, Ben Colton, global head of asset stewardship at State Street, told me.
“We are most likely to support shareholder proposals that are focused on disclosure,” he said. “We are very unlikely to support shareholder proposals that are prescriptive in nature dealing with operational changes.”
The situation is somewhat different in Europe where shareholder proposals are less common and regulations have already mandated many of the climate disclosures that environmentalists have asked for.
More popular on both sides of the Atlantic have been “say on climate” proposals, aimed at forcing companies to submit their energy transition plans for shareholder approval. This campaign was initiated by billionaire investor Chris Hohn, founder of the activist hedge fund TCI, and proposals have been filed at Shell among other companies.
“We did not support shareholder proposals asking for companies to adopt say on climate,” Colton said, in part because they “could serve as a shielding mechanism” to deflect accountability away from the board of directors.
However, there is a continental split between European and US asset managers in their willingness to support environmental or social proposals. Large European asset managers tend to support all environmental or social shareholder proposals that win 40 per cent or more, according to Morningstar. US asset managers only support about half of these proposals.
“Our research has found a persistent and growing gap between US and European managers when it comes to support for environmental and social proposals,” Lindsey Stewart, director of investment stewardship Research at Morningstar, told me.
Legal & General Investment Management, for example, has already disclosed its votes for the first three months of 2024. It voted for four shareholder proposals at Tyson Foods, including one demanding more transparency into the company lobbying on climate issues and one calling for accelerating deforestation protections in its supply chain.
As shareholder proposals have grown more contested, this year will probably see more fights between companies and their investors over climate change and human rights. (Patrick Temple-West)
Central banking
Are central banks helping to prop up fossil fuel companies?
In our Monday edition, Zehra Munir examined steps some central banks are taking to boost cleaner finance, including a proposal to split up interest rates for so-called brown and green investment.
Critics of dual rates say that central banks should not politicise investment. But a report published yesterday by non-profit groups Reclaim Finance and Urgewald shows that central banks’ existing structure may be far from politically neutral.
The European Central Bank already plays a role in supporting the fossil fuel economy, the report argues, with its list of assets that can be used by banks as collateral for credit.
The report analysed data from 2023 and 2024, and found that the ECB had made assets from 34 fossil fuel developers eligible as collateral. Ten of the listed companies were active in the coal industry, the report points out, including Glencore, a leading developer of thermal coal mines.
The ECB is already taking steps to address what critics have called its inherent “carbon bias”. The central bank announced in 2022 that it would review its collateral policy by the end of 2024, cutting the share of eligible assets issued by polluters. But the bank said that “at first” it would apply those changes only to marketable debt issued by non-financial corporations.
Reclaim Finance points out that this could be a big loophole. About 40 per cent of the fossil fuel assets it identified were issued by financial subsidiaries of fossil fuel corporations, report author Clarisse Murphy told me, putting them outside the scope of the ECB’s pare-down. All eligible assets from Glencore, as well as those from oil and gas companies Repsol, BP and Shell, were issued by their financial subsidiaries, effectively exempting them from the ECB’s proposed limit.
The ECB, for its part, has said that it lacks data on asset-backed securities and other structured products issued by financial corporations that are eligible as collateral. That could be constraining the central bank’s ability to exclude these products — at least while it seeks more disclosure. (Lee Harris)
Right to reply
Last Friday we explored academic Brett Christophers’ argument that the renewables market is not working. Reader Patrick Hubert in Paris wrote this in response:
Talking about oil majors’ “record profits” and renewables’ “poor underlying returns” is a bit short-sighted, but so is the absence of a global price/tax on carbon emissions. It has taken decades of both rising taxation and active discouragement of smoking in public places for tobacco consumption to start plummeting in countries where such policies were followed (lagging medical evidence and sky-rocketing health costs by +/- half a century): carbon policies are also taking decades to shape, unsurprisingly given the lobbying budgets available to fossil fuels producers.
Besides, it seems the argument was developed mostly by focusing on utilities and grid, ie electric power generation, which have long depended on fossils. However, nearly a third of emissions are related to mobility, not power.
The cyclicality of the fossil fuel sector over longer periods of time is well-known, and the increasing competitiveness of renewables is an inescapable fact which oil and gas companies will increasingly have to confront, as distributed storage (both fixed and mobile through grid-connected EVs) becomes ubiquitous: as prices come down, more consumers can reduce grid and petrol dependency by switching to renewables and electric vehicles, reducing demand for fossils.
However, Mr Christophers’ advocating more state involvement is welcome: both as a more patient investor (eg infrastructure) but most of all as regulator, the state’s role is crucial to ensure that the renewables (with storage) market is made to work, as it can and ultimately will.
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