ExxonMobil shareholders earlier this year successfully voted to demand climate risk disclosure in a move which was widely held as a bellwether for similar moves across the sector, but a new report from Preventable Surprises has revealed that some of the largest investors in utilities are voting against climate risk disclosure, preferring private engagement over public proxy votes.
The ExxonMobil vote earlier this year was heralded by many as a potential bellwether for energy companies across sectors. Two of the world’s largest money managers — BlackRock and Vanguard, which are two of the three largest Exxon stakeholders along with financial services company State Street — both supported the move that instructed ExxonMobil to disclose the impact of global measures designed to limit global warming to 2°C. It was a blatant rebuttal of ExxonMobil management and could have been the first step towards a wider climate risk disclosure rebellion.
Sadly, however, top investors in the United States — including the aforementioned BlackRock and Vanguard — are actively preventing similar climate risk disclosures at US utilities, preferring instead to rely on private engagement over public proxy votes.
London-based think-tank Preventable Surprises published a new report this week, The Missing 55%: Voting records for the 10 largest utility investors show divergence on climate risk, which scored the 10 largest investors in US utilities on their proxy voting in the sector. The report highlights the contradiction between how these large investors voted for Exxon’s climate risk disclosure versus how they vote for utility climate risk disclosure.
The importance of this report is more than just semantics, however. According to the US Environmental Protection Agency (EPA), in 2016, US utilities accounted for 63% of greenhouse gas emissions, while the oil and gas sector (including ExxonMobil) accounted for only 15%. As such, climate risk disclosure — which can lead to greater investor pressure for more-active climate business policies — in the utility sector is of significant importance. We need a 60% decrease in greenhouse gas emissions by 2050 if we are to ensure global warming does not exceed 2°C, and US utilities (and utilities everywhere) are central to this effort.
According to Preventable Surprises, a total of 9 separate utilities faced shareholder resolutions in 2017 requiring them to disclose their exposure to regulatory, technological, legal, and meteorological forces intended to drive a 2°C transition — but only one vote received majority support. Across the other 8 votes, the vote in favor averaged only 45%. Preventable Surprises found that the top ten investor firms control one in every three shares voted in these climate risk votes — representing a significant and dangerous concentration of power.
As can be seen in the chart below, Vanguard, BlackRock, and BNY Mellon each voted against every climate risk vote put up in 2017, and in response to the think-tank’s questions, both Vanguard and BlackRock explained that they prefer private engagement over proxy votes.
While private engagement — remaining involved but making your demands known behind-the-scenes — is a valid tool for investors to engage change, it lacks accountability, transparency, metrics, and is more easily shrugged off, or put on the back-burner. Making these efforts public drives greater pressure for necessary change. The Task Force on Climate-Related Financial Disclosure (TCFD) earlier this year recommended all publicly traded companies should provide the level of transparency sought in the 2°C scenario resolutions, revealing how they are managing climate risks and opportunities that have arisen from the signing of the Paris Climate Agreement.
And while, as Preventable Surprises point out, “it may not be reasonable to expect the world’s largest asset managers to take the lead on enforcing the Paris Agreement (unless they actually commit to their PR about investing for the long term),” it should be well within their remit “to expect them to manage risk in a heavily polluting and poorly regulated sector.”
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