In 2015, in what is known as the Paris Agreement, global leaders committed to holding the average global temperature increase to "well below 2 degrees Celsius," and pursuing efforts to limit the increase to 1.5 degree Celsius. To achieve this goal, science-based targets have been set to cut emissions by at least 40 percent below 1990 levels as soon as 2030. As investors translate the urgency of this timeline into financial projections, it appears that climate change will be a key issue of focus as we head into the 2020s, and the 2020 proxy season in particular. Indeed, Larry Fink today sent his annual letter to CEOs – A Fundamental Reshaping of Finance – identifying climate change as a defining factor in companies' long-term prospects and declaring that the time has come for every company to confront climate change.
Recently, the largest asset managers, particularly Blackrock and Vanguard, have received criticism for their voting track record on climate-focused shareholder proposals. Majority Action1 identified 16 proposals during the 2019 proxy season that would have received majority support had BlackRock and Vanguard supported these proposals. Possibly at least partly in response to this criticism, on January 9, BlackRock announced that it joined Climate Action 100+,2 arguably the most prominent investor group focused on companies' actions in response to climate change. During the 2019 season, BlackRock supported 12% of shareholder proposals deemed "climate critical" by Majority Action, whereas Climate Action 100+ signatories such as Legal & General Investment Management, UBS Asset Management and Northern Trust Asset Management supported 95%, 59% and 32%, respectively. Following this move, we expect BlackRock's support for these shareholder proposals will begin to tick upward beginning this proxy season. To this end, Larry Fink explicitly states in his letter that BlackRock will be "increasingly disposed to vote against management and boards of directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them." In his companion letter to clients, also released today, he reiterates that BlackRock will be taking a harder stance against management in its proxy voting on sustainability proposals when companies have not made sufficient progress in disclosing sustainability-related information in a manner aligned with SASB3 standards and the TCFD4 framework. Given BlackRock's leading market position, we may see a broader shift in Institutional asset managers' voting activity on this issue as we head into 2020.
On the subject of climate-focused shareholder proposals, on January 8 Barclays plc received a shareholder proposal from ShareAction5 urging it to align its provision of financial services to companies in the energy and utilities sectors with the Paris goals, claiming it is the sixth largest financier of fossil fuels globally, and the largest in Europe. Specifically, the proposal directs Barclays "to set and disclose targets to phase out [on a Paris goals-aligned timeline] the provision of financial services, including but not limited to project finance, corporate finance and underwriting." Although Barclays is a UK company, it seems likely that US financial services companies, particularly those who have signed on the UNEP Finance Initiative's Principles for Responsible Banking but have not yet disclosed specific Paris-aligned goals, may be subject to similar demands from investors this proxy season. Indeed, while not as prescriptive as the Barclays proposal given Rule 14a-8 considerations in the US, JPMorgan Chase and Wells Fargo have received similar proposals from As You Sow (a co-filer of the Barclays proposal) seeking reporting outlining if and how the banks intend to reduce GHG emissions associated with their lending activities in line with the Paris goals.
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1 Majority Action is a non-profit organization focused on "educating and engaging investors on the critical role of corporate governance in addressing climate change."
2 Launched in 2017, Climate Action 100+ has grown to include more than 370 investors representing $41 trillion in assets.
3 The Sustainability Accounting Standards Board has developed standards covering 77 industries across 11 sectors, identifying for each industry a set of topics it deems to be financially material.
4 The Task Force on Climate-Related Financial Disclosures was established by the Financial Stability Board to develop consistent climate-related financial physical, liability and transition risk disclosures. The TCFD framework provides recommended disclosures structured around four thematic areas – governance, strategy, risk management and metrics/targets.
5 ShareAction is a UK charity focused on progressing a responsible investment system by "(1) building a movement for responsible investment, (2) reforming the rules, governance and incentives inside the investment system and (3) unlocking the power of investors to catalyse positive social and environmental change." 11 institutional investors co-filed this resolution with Share Action: Arcus Foundation, As You Sow, Brunel Pension Partnership, Central Board of the Methodist Church, Falkirk Council Pension Fund, Folksam, Jesuits in Britain, Lankelly Chase, LGPS Central, Merseyside Pension Fund, and Sarasin & Partners.