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Apr 08, 2024

Climate Action 100+ exits are about climate evolution, not a loss of momentum, says ESG expert

New report examines voting patterns of big money managers that have exited or scaled back involvement in prominent climate-activist coalition

‘Investor relations professionals shouldn’t think there’s been a loss of momentum in terms of how managers are approaching climate,’ says one sustainability expert, talking about the significance, in recent months, of a number of top-name investment managers exiting the Climate Action 100+ (CA100+) pressure group.

Instead, he says the move signifies ‘an evolution of the [climate] approach’ as certain money managers hone in on exactly what they’re looking for when it comes to ESG.

‘US managers in particular are becoming a lot more specific about what they mean when they say sustainability,’ Lindsey Stewart, director of investment stewardship research for Morningstar, tells IR Magazine. ‘We had a phase in 2020 and 2021 where there were lots of inflows into sustainability or ESG-labeled products as managers wanted to appear keen to cater to that demand. That has tailed off.

Lindsey Stewart, director of investment stewardship research for Morningstar
Lindsey Stewart, director of investment stewardship research for Morningstar

‘Instead, managers are becoming more specific about what they mean when they say sustainability and the specific objectives they are targeting. Is it decarbonization? Is it the climate transition? Is it a purely financial returns-focused approach? Or are they looking to be sustainable as an organization because they think that’s what their end-beneficiaries want? US managers are being clearer on their objectives and their approach to sustainability themes – and that is a good thing.’

Signatories exit

Stewart is talking to IR Magazine about how IR professionals should interpret membership shifts at CA100+, the influential pressure group that has seen Invesco, JPMorgan Asset Management, Pimco and State Street Global Advisors leave the initiative and BlackRock restrict its participation to non-US business.

New research from Morningstar looks at support for climate-related resolutions flagged by CA100+, in light of accusations of collusive behavior – which it denies. The report, titled Climate Action 100+ departures put proxy voting in the spotlight, finds that concern about collusion by CA100+ signatories is ‘overstated’.

Each year, CA100+ flags shareholder and management proposals to its members for consideration at AGMs. In 2023, the initiative flagged 20 shareholder resolutions at 15 companies and Morningstar looked at how Invesco, JPMorgan, Pimco, State Street and BlackRock supported those resolutions. What the firm found was an average of 45 percent support, with a range of 10 percent to 95 percent.

‘There was a relatively wide range of support for these proposals,’ the research notes. ‘Two of the resolutions featured on our list of well-supported key ESG resolutions with more than 40 percent adjusted support were a request at Berkshire Hathaway for a report on climate-transition risks and opportunities, and one at PACCAR requesting transparency on climate-related lobbying activities. Support for 18 other resolutions ranged from 16 percent to 36 percent. The most successful of these was a request at ExxonMobil for disclosures on methane emissions.

‘Requests for disclosure on greenhouse gas reduction targets formed the largest category, with eight such proposals in 2023. Two proposals on just transition – focused on achieving fairer social outcomes of climate transition – achieved less than 20 percent adjusted support.’

In a statement about manager departures released in February, CA 100+ says: ‘While we are disappointed to see them go, hundreds of investor signatories remain committed to ensuring 170 of the largest greenhouse gas emitters reduce emissions, improve governance and strengthen climate-related financial disclosures.’ 

A US shift

Stewart, who is also author of the report, specifically talks about US managers when he discusses what these shifts mean for IROs. And the research also points to a gap in the support US and European managers give to climate resolutions.

‘The average voting profile of the five exited or amended signatories is very similar to that of other US managers,’ the report adds. ‘The 20 US managers we reviewed supported an average 48 percent of the 20 resolutions. In contrast, the 20 European managers we reviewed supported an average 85 percent of the 20 resolutions.’

This of course has implications for how companies tell their story, notes Stewart. ‘US investors and European investors are looking at these [resolutions] very differently,’ he says. ‘US investors are being pushed in a direction where they’re having to take a more strictly financial returns-focused view.

‘We’ve moved away somewhat from the keenness we had around 2020 and 2021, when – at least from the way these issues were being talked about – it was about the good of the planet. That sort of messaging is still very much present in the minds of European investors and sustainability-conscious investors, however.’

This means IROs will have to think about their messaging across different priorities, adds Stewart: ‘Companies will have to be very clear how they’re going to align their message with the needs of the entire slate of the share register in terms of that financial focus versus that double-materiality focus they have in Europe – without appearing to contradict themselves.’

The manager view

Although there is in part a shift in money manager appetites for joining such initiatives, increased investment into internal stewardship teams also plays a big role.

JPMorgan Asset Management tells IR Magazine that it is not renewing its membership in CA100+ ‘in recognition of the significant investment we have made in our investment stewardship team and engagement capabilities, as well as the development of our own climate-risk engagement framework over the past couple of years.’

A spokesperson explains that the firm has built a team of 40 ‘dedicated sustainable investing professionals, including investment stewardship specialists who also leverage one of the largest buy-side research teams in the industry – with more than 300 analysts globally’, meaning JPMorgan is in a strong position to analyze risk internally.

‘We believe climate change continues to present material economic risks and opportunities to our clients, and our analysts will continue to factor this into engagement with companies around the world,’ says JPMorgan’s spokesperson.

At State Street, however, a spokesperson explains that new requirements at CA100+, known as Phase 2 and representing a shift from pressuring companies on climate disclosures to pushing them to actively reduce greenhouse gas emissions, meant it was ‘not consistent with our independent approach to proxy voting and portfolio company engagement.’ State Street’s spokesperson stresses the management of climate-related risks and opportunities as remaining ‘a key element in seeking long-term value for our clients’.

A comment provided to IR Magazine by State Street reads: ‘Our asset stewardship team anchors its program on effective board oversight and disclosure of material risks and opportunities, including those that are climate-related. This has been, and will continue to be, a core aspect of our stewardship program and was never predicated on membership in any organization. Our commitment to climate-related efforts has not changed, and we will continue to enhance our research capabilities, partnerships and data analytics to build climate-investing solutions for our clients.’

Invesco tells IR Magazine it has decided to leave the initiative as it believes its ‘clients’ interests in this area are better served through our existing investor-led and client-centric issuer engagement approach.’

Neither Pimco nor BlackRock responded to a request for comment.

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...