Take Five: State Boundaries
A selection of the major stories impacting ESG investors, in five easy pieces.
The US President has turned his attention to the enemy within, while retreating temporarily on tariffs.
Unleashing chaos – Unusually “tricky” conditions in the US Treasuries market forced Donald Trump to step back from the brink of a global trade war this week, but the US President continued to push the boundaries of executive power, with far-reaching implications for climate action. Some observed that irreversible damage had already been done to trust in US economic policymaking by the tariffs launched on so-called Liberation Day, regardless of the 90-day pause announced Wednesday. But there is more damage on the way for efforts to reduce the country’s carbon footprint after Trump signed on Tuesday an executive order taking aim at state-level climate legislation. The order asks Attorney General Pam Bondi to “take all appropriate action to stop the enforcement” of any state and local laws and policies that run counter to the previous ‘Unleashing American Energy’, also calling into question their constitutionality. The new order cites New York State’s proposed Climate Superfund law and California’s emissions trading rules as examples of regulations potentially in scope (the latter’s carbon disclosure rules may also be targeted). It claims such laws “weaken our national security and devastate Americans by driving up energy costs” – ignoring the inflationary impact of tariffs levied against China and others, which will add to the outlay needed to build out the US’s fastest-growing energy sector – renewables. The order was signed alongside others designed to revitalise the US coal industry in response to rising domestic energy demand, which Fitch unit BMI said would have limited impact due to the fuel’s “inability to compete from a cost perspective”.
Nuclear reactions – Trump’s ‘anti-overreach’ executive order includes “nuclear energy resources” among the domestic industries he is seeking to protect in the interests of “American energy dominance”. The industry was also backed this week by ex-US government officials calling for the World Bank to lift its ban on funding nuclear energy projects in developing markets. These included former US Deputy Assistant Secretary of State for African Affairs Todd Moss, who claimed African and Asian leaders “want nuclear [as] part of the mix” in pursuit of reliable low-carbon energy sources. World Bank President Ajay Banga has already indicated his support, and further soundings will be taken at the organisation’s Spring Meetings later this month, ahead of a formal proposal in June. Will a change of policy among development banks be a catalyst for increased flows of private finance into the nuclear energy sector? In this week’s feature, several asset owners and managers told ESG Investor they are open to taking ‘the nuclear option’. But opinion remains divided, including in the US, with one senior figure asserting: “Nuclear power is among the most costly approaches to solving America’s energy problems and we think it is a poor investment.”
Pay restraint – Allianz Global Investors (AllianzGI) pushed executive remuneration back up the agenda this week by pre-announcing its opposition to outgoing Stellantis boss Carlos Taveres’ final payout. “The pay package of €23.1 million (US$25.7 million) for the former CEO proposed under the remuneration report appears overly generous, particularly given the lacklustre operating performance and the circumstances surrounding the CEO’s forced resignation,” said the firm in a statement. AllianzGI will vote against the global vehicle manufacturer’s remuneration report at next week’s AGM, having consistently flagging its concerns in recent years – through voting and engagement – caused by “insufficient assurance of alignment between executive compensation and long-term company performance”. Stellantis is unlikely to be alone in facing shareholder opposition to executive pay deals. A new report from Deloitte anticipates at least a quarter of FTSE 100 firms will also seek for approval of new policies at upcoming AGMs, with around half of these aiming to “significantly increase incentive levels”. Meanwhile, firms in the UK retail sector face investor pressure on pay issues beyond the boardroom, with Next, JD Sports and Marks & Spencer being asked to disclose how many full-time and contracted staff are being paid below a real living wage.
Captive market – Banks have been firmly in investors’ sights in recent proxy voting seasons, with the attention of resolutions centred on climate-related disclosures rather than executive pay – although the two issues may collide at AGMs this year after large UK-based institutions dropped net zero targets from bonus incentive structures for senior management. In the US, there may also be questions about the recent departures of leading firms from the Net Zero Banking Alliance – despite the likelihood of fewer formal resolutions in the wake of regulatory changes tipping the balance of power away from investors. According to ‘Proxy Preview 2025’, a number of banks will face requests to disclose clear energy supply financing ratios. While necessary, recent research suggests such scrutiny efforts have only limited impact. A study from the University of Navara’s IESE Business School has found “no evidence” of a link between a higher ownership stake by sustainability-led investors and shifts in banks’ loan allocation strategies between firms with low and high emissions. Separately, a survey of decision-makers at 350 global financial institutions conducted for carbon asset developer South Pole found that 72% have no intention of reducing their fossil fuel exposures over the next decade, even though around half have plans to increase their exposure to green assets over the same period. The banking sector’s adeptness at regulatory capture is well known, but IESE’s researchers suggest this now extends to its investors, who tend to treat banks differently “due to regulatory requirements and their unique governance structures”.
It ain’t over ‘til it’s over – One of the many stories to get swept aside by tariff fever in the two weeks since this blog was last published was the €23 million (US$ 25.6 million) greenwashing fine slapped on asset manager DWS by German prosecutors. The sanction was imposed after an investigation found evidence of wrongdoing continuing until 2023, a year after the scandal had claimed the scalp of CEO Asoka Wöhrmann. This raised eyebrows given that the Frankfurt probe was sparked by charges brought by the US Securities and Exchange Commission over misleading practices by the asset manager between 2018 and 2021. These were brought after Desiree Fixler, then head of ESG at the firm, blew the whistle on false claims, having failed to gain the attention of bosses, resulting in a US$19 million settlement in 2023. Perhaps surprisingly, this latest fine is not the end of the story, with prosecutors still pursuing criminal investigations against certain individuals, according to the Financial Times, and German financial watchdog BaFin conducting enquiries separately. This lack or urgency does not help investor confidence and likely contributed to Fixler’s evident bitterness.
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