US investors shy away from corporate climate proposals

One thing to start: DWS chief executive Asoka Wöhrmann has resigned from the German asset manager following a raid by about 50 police on its Frankfurt offices. Authorities in both Germany and the US have been investigating allegations of greenwashing by DWS’ former sustainability head Desirée Fixler – read our recent interview with her here.

It all looked so promising for the US’s growing band of green activist shareholders. Fresh from a record haul of successful climate-related company proposals last year, they hoped to go still further with an even higher number of resolutions ahead of this year’s proxy season.

But it now looks like the tide of investor support is turning against these resolutions. A powerful signal to that effect came last month, with BlackRock’s statement that it would support fewer green proposals than last year. The giant asset manager said the proposals were becoming increasingly far-reaching, to the extent that they would interfere with executives’ ability to do their job.

Many in the non-governmental sector — and in the financial industry — criticised BlackRock’s stance. But from the outcome of recent shareholder votes, it is clear that Larry Fink’s company is far from alone in its leeriness towards the growing wave of climate proposals. Last week was a case in point, with climate resolutions voted down — with some important exceptions — at companies ranging from Amazon to ExxonMobil.

In today’s edition, we dig into new data that shows just how stark the drop-off in investor support has been in the US this year. But we have sharply contrasting news from Australia, where billionaire Mike Cannon-Brookes has shown that green shareholder campaigns — if executed with sufficient savvy and resources — can still cause a big upset. Corporate leaders should not relax just yet. (Simon Mundy)

So much for that record year of climate proposals . . . 

Late last week, BlackRock disclosed on its website that it spared ExxonMobil and Chevron a thrashing on the climate change issues.

At both companies’ annual meetings, BlackRock did vote for one climate-related proposal at each of the two oil majors. But as it previewed earlier in May, BlackRock supported these proposals because they called for more disclosures around climate change risks.

The more demanding shareholder proposals — calls for the companies to actually reduce carbon emissions — were voted down by BlackRock and other big asset managers.

BlackRock’s decision to pull punches underscores an emerging trend from annual meetings in 2022. Last year, a record number of environmental proposals passed with majority support at large US companies. That success might have emboldened activists to file more aggressive proposals in 2022, but asset managers have been unwilling to follow along, according to an analysis that Georgeson, a corporate governance consultancy, has shared exclusively today with Moral Money. This analysis looks at the early voting trends for voting season year-to-date.

The number of environmental shareholder proposals submitted to companies has jumped this year to 172 at Russell 3000 companies, up from 124 for all of 2021. But “early voting results suggest damped support,” according to the Georgeson report.

Only 20 per cent of environmental proposals have passed with majority support so far this year, compared with a third last year, Georgeson said. This shift suggests that despite “heightened ambitions” from climate-focused shareholders this year, the bulk of investors have shied away from putting serious pressure on companies, Georgeson said.

This comes amid heightened political tensions in the US around the ESG agenda. Some conservative politicians, notably former vice-president Mike Pence, have hammered BlackRock and other proponents of ESG investing for targeting oil companies. (Never mind that Exxon is now the 15th largest holding in BlackRock’s biggest ESG fund — up from 38th at the end of 2021).

“This tension may be a driver behind some of the recent pullback in support of proposals from asset managers like BlackRock,” Georgeson said.

The voting season statistics that Georgeson highlighted reveal one indicator, but do not tell the full story. Activists and companies can both claim victory when issues are resolved before going to a shareholder vote.

Of 39 shareholder proposals tracked this season by the Climate Action 100+ investor group, at least 22 have been withdrawn, after companies reached agreement with the dissident shareholders. As CA100+ observed, that shows how seriously companies are taking these climate-related shareholder proposals — even if many of them still struggle to secure support from asset managers. (Patrick Temple-West)

Australian billionaire draws blood with climate campaign

Australia was the scene of a big green showdown this week, when software billionaire and climate activist Mike Cannon-Brookes used the playbook of corporate raider Carl Icahn to overturn the strategy of power company AGL Energy, the country’s biggest carbon emitter.

In contrast with Icahn’s most recent foray — an unsuccessful bid to push McDonald’s on animal welfare standards, using a tiny shareholding — Cannon-Brookes has put serious money behind his campaign, and has been getting results.

The Sydney-based Atlassian co-founder and co-chief executive amassed an 11.3 per cent stake in AGL and convinced enough other shareholders to join him in blocking the company’s plan to spin off its three large coal plants into a separate entity. That plan would have allowed AGL to run the plants well into the 2040s, while ringfencing that business from its more ESG-friendly operation providing electricity to households. Cannon-Brookes argued the plan was inconsistent with the Paris goals, and wanted the plants closed down by the early 2030s.

By last weekend it was clear Cannon-Brookes had the votes — including a public endorsement from large Australian pension fund Hesta — forcing the company to abandon the demerger and its chief and chair to resign.

Cannon-Brookes, who is Australia’s third-richest person with a personal fortune of about US$20bn, according to the Australian Financial Review, will now push for the company to remain intact and use its large customer base, its ownership of well-connected points on Australia’s electricity grid, and its reliable cash flow to invest in renewable generation and shut its coal plants early.

Some analysts predict Canadian investment group Brookfield will join Cannon-Brookes in another bid to take the company private, following their unsuccessful joint bid for the group in February — an easier proposition now that Cannon-Brookes is AGL’s biggest shareholder.

AGL invited third party bids on Monday, so the story is far from over.

Zoe Whitton, a partner at Sydney-based climate advisory and investment company Pollination, told me the saga had implications beyond AGL and Australia. She predicted Cannon-Brookes’ success would start a trend of green corporate raids and takeover bids for emissions-intensive companies that are struggling to decarbonise.

“It is really interesting that what would have been considered a reasonable transition for a utility 10 years ago has now quite conclusively been viewed by shareholders as an insufficient transition,” she said. “It is our view that highly funded, disruptive, sometimes slightly audacious interventions in companies that have assets that need to transition are probably going to be the norm in the future.”

She said this could extend beyond utilities to harder-to-abate sectors such as materials and industrials. This trend, she said, would be led by “a growing group of investors [that] can see an opportunity of gaining control of assets and putting them on a transition pathway.”

Executives in Australia’s power sector, speaking on background, tell me they are expecting a wave of takeover bids — not just from billionaires and transition funds such as Brookfield. They say international oil majors are also interested in Australia’s vast renewables and green hydrogen potential as a way to transition to a low-carbon business model. (James Fernyhough)

Chart of the day

This chart may help explain the growing backlash in the US to the ESG agenda, which some conservatives have linked with rising fuel prices. Spending on petrol now accounts for nearly 4 per cent of personal consumption spending in the country, up from a bit over 1 per cent a couple of years ago. That is still below the levels reached in the early 1980s, and just before the 2008 global financial crisis. But the rapidity of the latest surge in fuel spending is extraordinary by the standards of recent years.

Smart read

• Can African nations achieve large-scale growth without soaring carbon emissions? Is a focus on renewable energy the key to the continent’s future prosperity – or a distraction from the priority of getting power to 600mn people who currently lack it? From Kenya, David Pilling plunges into one of Africa’s hottest and most important debates.