ESG Watch: Climate activist investors were sidelined this earnings season, but they’ll be back

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Climate activists display a banner during a protest in front of the headquarters of Swiss bank Credit Suisse in Zurich, Switzerland April 29, 2022. REUTERS/Arnd Wiegmann

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June 28 - Earnings season has ended and there is a sense among environmental campaigners that there has been a backward step in efforts to get companies to take more action on climate change.

Last year’s earnings seasons saw campaigners score some stunning victories, most notably the success of tiny fund Engine No. 1 in winning three board seats at ExxonMobil. There were also victories for campaigners demanding greater climate risk disclosures at companies including Chevron and ConocoPhillips as well as non-oil and gas groups ranging from GE to Glencore.

These results were bolstered by a court case in the Netherlands ordering Shell to tighten its climate targets. Then came the COP26 climate conference in Glasgow, which saw countries raise their national climate ambitions, and a growing number of companies announce net zero targets.

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But this year’s earnings season took place against a very different backdrop. Oil and gas prices are at record highs, prompted by Russia’s invasion of Ukraine, and the focus has switched to energy security rather than cutting emissions.

Abhijay Sood, financial sector research manager at British charity ShareAction, believes geopolitics had a big impact on this year’s annual general meeting (AGM) season. “For whatever genuine concerns (the Ukraine invasion) has raised for energy supply, it has also provided a powerful plausible excuse to procrastinate instead of committing to vital climate action,” he said.

A view of the ExxonMobil Baton Rouge Refinery in Baton Rouge, Louisiana, U.S., May 15, 2021. REUTERS/Kathleen Flynn

In addition, there has been a backlash against the concept of ESG after it was liberally appropriated by asset managers for a range of products.

This change in approach was best illustrated by BlackRock. The world’s largest asset manager, which supported 47% of environmental and social shareholder proposals in 2021, announced that it would support fewer proposals in 2022 because “many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value”.

Some key players were downhearted at this apparent change in fortunes and U.S. climate envoy John Kerry told the World Economic Forum that the war in Ukraine and the energy crisis was no excuse to reverse the energy transition and continue our dependence on fossil fuels.

Mark van Baal, chief executive of shareholder activist group Follow This, said that this year’s earnings season was “a step back in the fight against climate change, compared to last year. Everyone who wants the Paris Agreement to be agreed should be discouraged.”

Ukraine and the energy crisis “gave big oil the opportunity to convince investors that they need to invest more in fossil fuels. (But) it’s just a fallacy,” he added. “It will take years and years to get any new projects online. We have lost a year, that’s for sure.”

He was particularly scathing about Engine No 1’s refusal to back Follow This’s resolution calling on ExxonMobil to set targets to reduce Scope 3 emissions, calling it “inexplicable”. But Engine No 1’s founder Chris James told Reuters that it had backed 83% of ESG resolutions at companies it invests in and said that “there has clearly been a huge and fundamental change” in how ExxonMobil treats climate risk.

ShareAction’s Sood said another possible trend this earnings season “is a fatigue around disclosure, or basic strategic asks. Investors may be critical of resolutions demanding further disclosure on the basis that they feel existing disclosures are sufficient.”

U.S. climate envoy John Kerry gestures during a news conference at the World Economic Forum 2022 (WEF) in the Alpine resort of Davos, Switzerland, May 25, 2022. REUTERS/Arnd Wiegmann

Legal and General Investment Management said it had voted against 35% fewer companies in 2022 because more companies had disclosed decarbonisation plans. It said that the fall was evidence that engaging with climate laggards was working and that more companies were now addressing climate risks.

Nonetheless, said Sood, at the same time “stronger strategic asks, necessary to address the deepening climate crisis, are unpalatable to shareholders, who haven’t yet grasped the necessary pace of change”.

This was made clear in a report by Carbon Tracker, published 10 years after its seminal Unburnable Carbon report, which found that that the “embedded emissions” in the fossil fuel reserves of companies listed on global stock exchanges – the amount of CO2 released if they are extracted and burned – has grown by nearly 40% in the last decade, despite a growing urgency to tackle climate change risks.

“Over $1 trillion of oil and gas assets risk becoming stranded as a result of policy action on climate and the rise in alternative energy sources,” Carbon Tracker said.

Nevertheless, Sood of ShareAction is optimistic. “It’s important to note that climate change hasn’t fallen off the agenda. Significant investor rebellions around climate took place this proxy season, for example at Glencore and Credit Suisse. The current global upheaval is itself a crucial opportunity to switch rapidly away from oil and gas towards renewables.”

This is a crucial point. Every dollar on a barrel of oil increases the appeal of electric vehicles, and every dollar on the price of gas makes heat pumps more competitive against gas boilers, not to mention bringing down the cost of fledgling technologies such as green hydrogen.

And investors have not abandoned their climate concerns: new figures from CDP show that 236 institutional investors with $31 trillion of assets under management have written to 1,400 of the biggest companies in the world that are not disclosing crucial ESG data, calling on them to be more transparent, as part of its annual non-disclosure campaign.

This year’s earnings season looks disappointing compared to last year’s high point, but the bar has been raised. This year is likely to be a pause, not a step backward.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Sustainable Business Review, a part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.

Mike Scott is a former Financial Times journalist who is now a freelance writer specialising in business and sustainability. He has written for The Guardian, the Daily Telegraph, The Times, Forbes, Fortune and Bloomberg.