AGM season is upon us once more. Last year was quite controversial with a lot of focus on the oil majors. A small hedge fund managed to get three of their nominees elected to the board of Exxon Mobil. Shell experienced a 30% vote in favour of a shareholder proposal from Dutch shareholder activist group Follow This, calling on the company to increase their ambition on emission reduction targets. Blackrock supported 54% of environmental shareholder proposals in 2021, as compared to 15% in 2020. Banks were also in focus, Barclays faced a shareholder proposal from another environmental activist group, Market Forces, which received 14% support. We wrote about these events in our blog, The season of proxy discontent. We also wrote about how we voted against the Shell transition plan and for the Follow This shareholder proposal. This year, given both the progress the oil majors have made on their transition plans and in the context of the energy crisis and the war in Ukraine, we will be supporting the oil majors at the upcoming AGMs. We feel that it is time to give the majors some space to execute on existing plans, while communicating clearly to them that many weaknesses remain and need to be adequately addressed. But, we also recognise that kicking the same oil majors, the ones prepared to engage with us and the ones that score best on transition plans (see CA100+ Net Zero Company Benchmark), versus their US peers and the many national oil companies, may be counterproductive. It may mean that we force the companies most attentive to climate risk, to divest assets into the hands of companies that care the least about climate risk, potentially worsening the climate impact, while not supporting the energy security situation in Europe.
However, this does not mean we sit back on our engagements or on the pressure that we put on the companies we hold to make progress on this transition. Last year we voted against the Market Forces shareholder proposal at the Barclays AGM. We felt the company should have more time to develop their plans and they committed to us that they would put forward a ‘Say on Climate’ at the 2022 AGM. They have delivered on the promise of an advisory vote, but unfortunately, in our view, not on the plan itself.
The ambition as stated in the three aims and the various communications from the Chairman and CEO, are lofty. The bank aims to be aligned with the Paris Agreement and the 1.5° goal. It aims to achieve net zero operations, reduce both financed and facilitated emissions in line with the Paris Agreement and to deliver large scale financing for green projects, while helping start-up companies developing climate solutions.
The detail fails the lofty ambition. On Aim 1 the emission reductions are flattered by Covid and the use of energy attributes certificates and carbon offsets. We recognise the challenges to deliver real operations emission reductions and the problem of sourcing enough renewable electricity. However, Barclays, as we all need to be, should be more transparent and less flattering of their achievements on these metrics.
Aim 2 is where real progress can be made with regards to the transition and mitigating climate change. Barclays is a large, global bank estimated to be the 7th largest provider of financing to fossil fuel producers and the largest European provider. The stated ambition to remove thermal coal and unconventional oil from the energy mix, is undermined by policy detail. The policy carves out the US from the 2030 deadline on coal power; it focuses on banning lending to fracking in the UK and EU, where it does not lend and fracking is widely banned; it promises to transition oil sands producers to a less carbon intensive destination, but that intensity target does not meet climate requirements. The policy states that it ‘integrates’ and is ‘informed’ by the International Energy Agency (IEA) Net Zero Emission by 2050 Scenario, yet the sector targets offer a target based on the pathway that clients are deemed already on, which is not consistent with 1.5°.
Aim 3 offers large scale financing, the challenge is to understand if this is ‘additional’ financing is under the plan or if it would have happened in its absence. The £175m for impact capital for sustainability-focused start-ups, is very much in the right direction, but the annual share of this capital represents merely 9% of the Bank’s marketing and advertising spend in 2021.
Barclays “do not think that simple divestment achieves the aim of supporting the transition of the economy”. We agree on this point, selling assets that reflect ‘sunk’ capital may hinder the transition. However, offering new financing or facilitating new equity or debt is different. We need market signals to push capital away from new fossil fuel projects to renewable energy, particularly away from the dirtiest fossil fuels like coal and unconventional oil and gas. A rising cost of capital is such a signal, but if banks continue to offer financing and facilitate new equity or debt to those companies, that market signal may not be as strong, sending the wrong message to companies in need of transition, potentially slowing or delaying the action that is needed.
We do think Barclays’ board is genuine in their desire to be climate champions and to align with the Paris Agreement. We do think they have made progress. But, we do not agree that their targets should largely depend on their clients’ progress – Barclays as the providers of capital can hugely influence events. Whilst we will vote against, we will continue to engage the company on this and other issues.
The advisory vote is a chance for shareholders to send a clear, constructive message to the bank that more needs to be done to meet their lofty goals and ambitions. We will therefore vote against the Barclays Climate Strategy, Targets and Progress 2022. We also note that this is a test of the ‘Say on Climate’ vote itself, – posing the question: is this a mechanism that shareholders are willing to engage with and make work?
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The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of Redwheel. This article does not constitute investment advice and the information shown is for illustrative purposes only.
