Last year was big in terms of shareholder engagement on climate change and banks started to feel the heat. Big lenders are increasingly in the firing line because despite pledges to tackle climate change, they continue to fund the expansion of the fossil fuel industry.
Yet for this year’s AGM season, no major climate resolutions have been filed. Does this represent a change in strategy?
Broken promises
While most big banks have joined networks such as the Net Zero Banking Alliance (NZBA) or the Glasgow Financial Alliance for Net Zero (GFANZ), their promises are not followed by action. Since the launch of NZBA in August, the world’s 56 largest banks collectively lent $269bn (£219bn) to more than 100 fossil fuel companies, a report by Reclaim Finance revealed.
Only a week after signing the NZBA pledge, 19 banks, including Citi, BNP Paribas and HSBC, contributed to a $13.4bn (£10.9bn) syndicated loan to Saudi Aramco, the company with the largest fossil fuel expansion plans, Reclaim Finance highlighted. Such inconsistency has faced investor scrutiny.
Jeanne Martin, head of ShareAction’s banking programme said that investors are increasingly considering bank funding through the prism of climate risk. “Investors can diversify their portfolio as much as they want,” she added, “but if banks continue to finance high carbon sectors with no strings attached, the action that they take on other sectors will have limited effects.”
Moving the goalposts
How are banks justifying the mismatch between words and deeds?
According to Martin, banks tend to shift the goalposts when it comes to net zero. “In most cases, they will claim that those activities will be captured by 2050 targets but won’t be captured by their 2023 or 2025 targets. Banks are reluctant to incorporate more short-term targets because they say there is no standardised methodology.”
But there have been cases of banks including only a fraction of their financing for capital markets in their targets. This includes Barclays, but also North American banks such as Wells Fargo, Martin said.
The mission of developing common reporting standards on fossil fuel financing is now being pushed forward by the Partnership for Carbon Accounting Financials, a global network set up by Dutch banks, which has published guidance on accounting standards for banks committed to net zero. But in the absence of an independent regulator, it remains a case of banks writing their own rules, Martin said.
Investor pressure
Last year, Barclay’s AGM was not only beleaguered by climate activists, but the lender also faced increased pressure from shareholders when almost a fifth rejected its climate strategy.
Similarly, Credit Suisse faced pressure from a $2trn (£1.7trn) investor coalition last year to amend its articles of association to include a climate pledge. Swiss listing rules are restrictive on shareholder resolutions, with a change of the articles of association one of the few ways for investors to push for a vote.
While the proposal, put forward by ShareAction, and backed among others by Publica and LGPS Central, was ultimately rejected by 77% of investors, it did have an impact. Credit Suisse announced a new policy, which committed the Swiss lender to phasing out arctic oil and gas.
As already highlighted, this year no major climate resolutions have been filed. Instead, banks are increasingly putting forward climate strategies themselves and asking investors for their backing, rather than facing shareholder resolutions. But this also creates the risk of a significant proportion of shareholders rejecting the plans, as last year showed.
Instead, banks like Credit Suisse have put forward their own climate policies and are asking investors to approve it. But critics already point out that the strategy is again missing specific short-term targets to reach the net-zero goals.
In other cases, such as Barclays, the board merely puts forward an update on its climate strategy, without asking for investor approval. Meanwhile, the focus of shareholder engagement has shifted towards a more personal approach. USS, the UK’s largest DB fund, has confirmed that it will vote against the appointment of directors.
“This approach is a change from voting more generally against a company’s annual report and accounts and allows us to hold individual directors accountable – research suggests taking a more personal approach to voting is more likely to drive change,” said David Russell, head of responsible investment at USS.
Last year, the fund voted against Barclay’s climate policy.
This year, ShareAction has sent a letter to Barclays, BNP Paribas, Credit Agricole, Deutsche Bank and Societe Generale, urging them to stop funding oil and gas fields. The letter is backed among others by LGPS Central, Brunel Pensions Partnership, Nest, LPFA, Smart Pension and Cardano.
Does this mean that investors are giving up on climate resolutions? Not quite, Martin said. “The way banks respond to this letter will determine what we do in 2024.”
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