“Greenification” of finance

ESG say something on climate, it is trendy

Climate and diversity are increasingly on the agenda of general meetings. Shareholder activists are putting pressure on with “say on climate” proposals and forcing fund giants like Blackrock or Amundi to make their voices heard more often. Have we not reached a breaking point or a tipping point?

The formidable opponent: « green activists »

Listed multinationals with a large carbon footprint are now facing a formidable opponent. Some activist investors are trying to push corporate management to change course. Some, including the famous Chris Hohn, are trying to launch ambitious campaigns based on the “say on climate” concept.  This is like the “say on pay” campaigns, which allow shareholders to express their views on the remuneration policy of their companies during annual general meetings. Companies must take their responsibility in the fight against climate change. By obliging General Managers to present plans to reduce their CO2 emissions and by requesting an annual report on the progress made, they are forcing companies to change, if they do not do so spontaneously. The shareholders leave themselves the opportunity to fire managers who would be in default. They want to get at least 100 of the largest publicly traded companies in the US to adopt a clear climate plan by the end of 2022. Blackrock as the world’s largest fund manager intends to impose this type of climate strategy. However, fund managers rarely vote on ESG measures at general meetings. Beyond the hype, managers need to deliver and avoid false promises.

Say on climate

But the tide has turned since the health crisis began. Managers want to use their active vote to make a difference and make it visible. No more working behind the scenes. Think of the AENA airport group, which has been subjected to a “say on climate” campaign against it by Blackrock. The general meeting is therefore becoming the scene of these confrontations on the ESG aspect. In the USA, the rule allowing any shareholder with at least USD 2,000 of shares during a year to put a proposal on the agenda has changed the situation. It remains a question of culture. The indirect, behind-the-scenes, bilateral strategy works better than the direct approach in a general meeting where the risk is binary (it either passes or it breaks…). It is becoming common to ask questions about “climate”, “health” or “working conditions”, for example.

« Green » watchdogs

Financial watchdogs across Europe are sharpening their scrutiny of potential “greenwashing” in the investment industry on rising concerns that capital is being deployed based on misleading claims. There is an avalanche of new private money pledged towards tacking climate change. It has prompted regulators to step up their work on setting standards to ensure banks, insurers and asset managers provide clear disclosures on the environmental credentials of the investments they are pitching. Green investors can no longer rely on rules of thumb. The new announcement of IFRS “ISSB” is a proof of this clear will. If you (properly) measure the green footprint and ESG maturity, it happens. Now there are very strong incentives to make assertions in the competition to be green.

Activists to defend climate chages

We are therefore seeing a rise in the power of “activist” shareholders who defend ESG strategies and punish companies with a non-ESG culture. Millennials will also completely change the situation because they have no qualms. Bank-based asset managers are now only offering ESG (or pseudo ESG) funds. Shell, Total, Rio Tinto or HSBC have been under attack from shareholders for taking action against climate change. The “black live matter” movement also played on diversity and was another catalyst for profound change. We’ve even heard of racial auditing at Amazon, J&J and other major banks. Rating agencies and news organizations publish many sobering statistics that raise questions. The search for maximum profit is no longer the only selection criterion, let’s face it. It is a pity that it is activists, like Share Action, who move the lines, more than the companies themselves. Institutional investors are also systematically voting in favor of climate change proposals or those that are ESG-friendly. Analyses that show that the most ESG-virtuous companies perform better or are more profitable than others. Performance will also help convince shareholders, but also management. There is still a long way to go. These are all factors that, when combined, will enable Europe to take the lead in terms of ESG.

François Masquelier – Chairman of ATEL

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).

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