Take Five: Falling Flat

A selection of the major stories impacting ESG investors, in five easy pieces. 

Anti-ESG proposals rocket in number but gather limited support, Kamala Harris picks a climate-friendly running mate, and the SBTi board backtracks on carbon offsetting.

Anti-ESG proposals on the rise – Much has been made of the ESG backlash, particularly in the US. But how big is it really? Morningstar Sustainalytics had a go at quantifying it this week, in a note looking back at this year’s proxy season. It makes for sobering reading. While shareholder proposals in the US increased year-on-year, this was driven almost entirely by a rise in anti-ESG proposals, which hit a record of 87, up from 67 last year. Pro-ESG resolutions were flat at 558. Anti-ESG proposals generally took conservative positions on issues like diversity, equity and inclusion (DEI), free speech and net-zero targets, said Lindsey Stewart, Director of Stewardship Research and Policy at Morningstar Sustainalytics. But support for such resolutions was minuscule, at 2%, compared to 23% across all resolutions. Support for anti-ESG proposals is likely to remain “rooted to the ground”, Stewart told ESG Investor. “Shareholders are either opposed to or uninterested in the content of these resolutions, and I don’t expect that to change any time soon,” he said. For pro-ESG resolutions, the picture was mixed. Support for environmental and social resolutions fell to 16%, down from 19% the previous year. Support for governance related issues, meanwhile, rose to 35%. As reported in our feature this week, AI-related proposals are also on the rise as investors get to grips with the risks of large language models. Looking forward, Stewart said developments in the next proxy season will depend on who wins the November US presidential election, as the Republican and Democratic candidates have wildly different positions on ESG issues. Speaking of which…

Kamala Harris’ pro-climate VP pick – This year’s US election will be a sliding-doors moment for green investors. If Republican candidate Donald Trump wins, expect a climate-denying administration to withdraw from the Paris Agreement and unleash a demolition derby on current President Joe Biden’s climate reforms – including an attempt to unwind the biggest climate law in American history: the Inflation Reduction Act, which has stimulated hundreds of billions of dollars in green private investment. But if Democratic hopeful Kamala Harris wins – well, what then? Since entering the race less than three weeks ago, she hasn’t said much about climate. But this week we got an idea of where her heart is when she named Minnesota Governor Tim Walz as her vice-presidential running mate. As governor, Walz, 60, has introduced a string of pro-climate reforms – including a law requiring all electricity generated in the state to be zero-carbon by 2040. He has also backed electric vehicle subsidies, rolled out charging infrastructure, and reformed permitting laws making it easier to build renewables. “This is *the* climate pick!” tweeted Fossil Free Media Director and 350.org Co-founder Jamie Henn. “Tim Walz had the best climate record of any of the VP contenders and has been unafraid to take on Big Oil.” Harris herself also has a strong record on climate, and investors hoping for a continuation of Biden’s pro-climate agenda will be watching nervously as the results start coming in on the evening of November 5.

Carbon offsets: in or out? – Back in April, the board of the Science Based Targets initiative (SBTi), the global standard-setter for science-aligned corporate climate targets, caused a stir when it released a statement arguing carbon credits had a key role in offsetting companies’ and countries’ Scope 3 emissions. For climate campaigners who believe carbon offsetting is basically greenwashing, this was a disappointing development. It drew accusations of conflicts of interest at the board level, and even prompted SBTi staff to issue a dissenting statement. Late last week, a group of 80 non-profits attacked the SBTi’s controversial position in a joint public statement, calling for carbon offsets to be ruled out of use to meet climate targets. “[O]ffsetting, at best, does not reduce the concentration of [greenhouse gas] in the atmosphere, it simply moves emission reductions from one place to another,” read the statement, the signatories of which included the New Climate Institute, Greenpeace, Amnesty International, Oxfam and Finance Watch. “[A]llowing companies and countries to meet climate commitments with carbon credits is likely to slow down global emission reductions.” But the SBTi, it seems, had already got the message. In new guidance issued two days earlier, it climbed down from its controversial April statement, accepting that carbon credits must only be used to demonstrate genuine Scope 3 emission reductions within the value chain – not to offset emissions with external credits. This drew qualified praise from the New Climate Institute, which had been among the most critical voices of the SBTi board’s earlier position. “The revision of the SBTi standards … may offer an encouraging pathway for the evolution of corporate climate accountability in 2024,” the group said – though it remained sceptical about any use of carbon credits at all.

UK apes Canada’s pension funds – Britain may have the third biggest pool of pension money globally, but its system is fragmented and that has prevented it from being a big player on the global infrastructure market – where Canadian pension funds are especially dominant. The UK’s new Chancellor Rachel Reeves wants to change this, saying she is looking at consolidating the £354 billion (US$450 billion) Local Government Pension scheme – currently divided into 86 individual funds – into one giant entity that would be among the top ten pension funds in the world. Reeves was in Canada this week talking to local funds to get ideas of how to do it. She was also due to meet former Bank of England governor Mark Carney, who since leaving Threadneedle Street has headed up Brookfield Asset Management’s innovative energy transition fund and become one of the world’s loudest advocates for green finance. What might all this mean for Britain’s clean energy investments? As we previously reported, the new Labour government has huge ambitions for the country’s energy transition, and has explicitly said it wants British pension money to fund it.  Having a global mega-fund under unified management on its doorstep will, Reeves believes, only help that. But the British pensions industry urges caution. “The sector is keen to work with the government to achieve the right approach to consolidation,” said Justin Wray, Interim Head of Defined Benefit, LGPS and Investment at the Pensions and Lifetime Savings Association. “The transfer of assets without loss of value takes time. The process in Canada took some time.”

Finally, to Australia – where the country’s biggest oil and gas group, Woodside, got some bad news. The company has been the subject of numerous shareholder resolutions and protests over recent years, and back in February, 58% of investors voted against its Climate Transition Action Plan. Central to their concerns was Woodside’s ambition to open up some of the largest new natural gas reserves in the world. One of these, the Browse field off the coast of Western Australia, would be an absolute polluting monster – producing as much as 1.6 billion tonnes of carbon dioxide equivalent over its lifetime. This week, it emerged – thanks to reporting by local newspaper WAToday – that the project is being blocked by the Western Australian Environmental Protection Agency (EPA). Climate, though, is not the concern. Rather, the agency fears the project would have an “unacceptable” impact on the pristine marine life of the region, which includes fragile reefs, rare pygmy blue whales and endangered green turtles. The decision is not final – Woodside can provide more information to back up its claim that the project would be environmentally sound – but the Conservation Council of Western Australia believes it is a serious blow. “The EPA has only recommended against two other oil and gas proposals since the 1980s, which goes to show the profound impacts that this proposal would have on the environment,” said Jess Beckerling, Executive Director of the Conservation Council of Western Australia (WA). “It is now incumbent on WA and federal governments to respect this independent scientific advice and expert opinion, and refuse Woodside’s application to develop Browse.”

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