The big US proxy fights – at Chevron, Exxon and Southern Company – over resolutions to publish 2°C climate change stress tests happened in May. Did common sense prevail? Those who abstained or voted against have reasons – none hold water. So thinking ahead to 2017 when climate risk will be more salient, now is a time to reflect.
• “This isn’t an issue for investors.”
Chevron and Exxon made this case to the US Securities and Exchange Commission (SEC). The SEC ruled against them.
• “As mainstream investors we don’t support politically motivated campaigners.”
You mean those well-known revolutionary groups, the Church of England, Hermes, Legal & General and Schroders?
• “Targeting US companies is do-gooder investing. We are real investors.”
Over 96% of (real) investors have voted for the same 2°C resolution at BP, Shell, Statoil, mining companies across the EU and Suncor. Why vote inconsistently in different markets when investors argue for level playing fields?
• “Investors can’t police companies. Each country has its culture. We have to stay neutral.”
The vast majority of the US public support action on climate change. Powerful minority vested interests have captured parts of the media, politics and the judiciary. Investors who abstain aren’t being neutral – they are enabling this capture of politics.
• “As a sophisticated research-led organisation, we anticipate market trends.”
All investors think they can sell oil stocks ahead of inevitable value destruction as the industry invests for a 4°C path as the world shifts to a <2°C path. Some may sell but, taken together, investors logically cannot. As with Peabody, but on a much bigger scale, investors will deny responsibility. Climate change will not be gradual. Physical impacts will be volatile; political consequences even more. Stock picking your way out of this is an illusion.
• “Divestment leaves investors who may be totally uninterested in charge. We stay and exert our influence.”
We promote forceful stewardship, not divestment. But we have no time for ‘tea & biscuits’ engagement. While investors have ‘engaged’, oil and gas companies have exited renewables, funded climate denialist organisations and, as alleged by attorneys general from 19 US states, said in public what they know to be false.
• “We are decent people. We have recycled paper/low energy light bulbs/bike parks/carbon footprints, etc.”
These are fine but not alternatives to direct action to reduce green house gas (GHG) emissions. Some have termed this ‘predatory delay’. Managing systemic risks means reducing GHGs. Conventional portfolio risk management techniques have limited value. That is why investors should ask companies to publish <2°C transition plans so the market delivers change.
• “We act only on evidence.”
London School of Economics economist Simon Dietz has shown that climate-related portfolio value-at-risk is significant, and growing. There is evidence that companies that are eco-efficient are better investment bets.
• “You really don’t understand what investors can and can’t do. We can’t micro-manage companies. We have fiduciary obligations.”
How do you think your private equity and activist hedge funds operate? And speaking of fiduciary duty, are you sure these deliver value for money? Many studies show these strategies can have a negative macro economic impact, reducing long-term corporate investment and growth. In contrast, asking for <2°C transient plans future proofs your portfolio and cheaper.
• “So what’s next on your agenda? A transition plan for Saudi Arabia?”
Actually, McKinsey & Co have done this. Some 97% of peer-reviewed scientists agree that humans are causing climate change. Ignorance or misinformation will only work for so long. The Saudis get climate risk. Surely professional investors can too?
Dr Raj Thamotheram is CEO of Preventable Surprises and a visiting fellow at the Smith School, Oxford University