‘Investors should vote against incomplete climate plans’

Reclaim Finance executive director tells asset managers their engagement strategies are out of synch with science

Say on Climate resolutions are being treated as referendums on whether investors like a company, rather than on whether it has a viable strategy for a 1.5°C world, according to Reclaim Finance founder and executive director, Lucie Pinson.

This AGM season has seen energy around climate resolutions ramping up to new levels with companies under more pressure than ever to show they are decarbonising.

However, Pinson (pictured) said she is seeing worrying trends in how asset managers are using their votes, with companies such as those in the fossil fuel sector being disproportionately rewarded for minimal progress.

“We see groups like Institutional Investors Group on Climate Change saying the [climate] plan itself is not good enough – there is progress, but it’s not good enough. Then you see the same investors voting in favour of the climate plan. We see this every year. 

“Investors should vote against all climate plans that are incomplete, that are lacking important information – such as reliance on negative emissions or offsets or the short-term absolute decarbonisation targets, or the scenarios of reference. And then, even if you do have all this information, you have to look at whether they are depicting a strategy that is good enough to be compliant with a 1.5°C trajectory or not.”

Mixed signals

The executive director said the current practice of investors making a statement with points of criticism about an insufficient climate strategy, while then voting for it, is sending out the wrong message.

“Investors should vote against most of the Say on Climate votes that are being proposed this year and make a statement if they want to applaud progress.”

The trend of voting “with” while making a statement “against” is causing decarbonisation to move forward too slowly, she said.

Pinson noted the example of French oil and gas giant TotalEnergies. It published a climate strategy which was voted on at its AGM last year in a Say on Climate.

“[Investors] sent a message to TotalEnergies it is doing a good job and its climate strategy is the one to follow, even if it will lead us to a world far beyond 1.5°C.

“There is a similar vote [this year]. We are calling on them not to repeat the same mistake. However, it remains to be seen if they are going to learn from their mistakes, considering TotalEnergies is, step by step, improving its policies.” 

Pinson called the type of progress TotalEnergies is making on climate “incremental baby steps” that allow investors to claim progress has been made. She mentioned investors can be swayed on a Say on Climate by the simple fact a company is consulting with shareholders at all.

According to Pinson, such progress does need to be acknowledged and supported, but in the correct way.

The reason investors are reluctant to vote against the board in these scenarios, Pinson commented, is they do not want to appear to be “against” the company. She warned votes, and Say on Climate votes in particular, should not become popularity exercises.

“TotalEnergies is asking you your opinion on its climate plan… it is not asking you if you like TotalEnergies or not, if you like [CEO] Patrick Pouyanné or not, or if you are supportive of the company or not. 

“That’s not what it’s about because if you didn’t like TotalEnergies… you would divest.” 

Close don’t sell

The NGO and think tank closely watches how financial institutions encourage energy companies to decarbonise through divestment. For example, Pinson noted how engagement by investor initiative Climate Action 100+ led Australian-British mining, metals and petroleum company BHP to sell off some of its “dirty” assets.

“We don’t see the investors criticising the company for doing that. We see the investors that have been engaging the company claiming it’s a good move and that because of them the company is getting out of coal.

“We don’t see them worried about the fact they don’t close it.”

Pinson said most divestments are being done by selling dirty assets, but some investors are pushing companies to close existing assets in a responsible way instead. This allows decarbonisation of the world, rather than just a portfolio, she stated.

“You do have policies in France where it is written, ‘we look at close not sell.’ It doesn’t mean they make it an exclusion criteria, it means they only ask.”

She expressed scepticism about the efficacy of this style of engagement.

“If it’s only ‘ask’ it might be something asked very politely at the end of the meeting [so] the company gets the sense of ‘ok this is something I can avoid doing.’”

Generally, the engagement Reclaim Finance is witnessing is seriously lacking teeth, Pinson said.

“How many financial institutions have you seen with a robust policy on engagement? By robust I mean transparent, very clear demands that are timebound and where failure of the company to meet these demands leads to some sanctions. A policy that includes an escalation strategy.

“There might be none of them.

“Even in the best case where they do have a set of KPIs, or a set of demands they can discuss with the company, it doesn’t necessarily mean failure to meet those demands will lead to certain sanctions.”

Pinson remains unconvinced by investors’ argument they need to keep a seat at the table.

“This idea of the need to engage over divest is not defended by the facts, if you look at the way it is being done.”