Climate change is on the agenda

This article is part of
Half-Year Review - June 2015

Investors are no longer content to sit on the sidelines waiting for governments to act.

Instead, they are beginning to realise that working together they can use their financial clout to good advantage.

The climate change issue is a recent example of how investors are engaging with policymakers, urging them to take action before the 21st United Nations Conference on Climate Change (COP21), taking place in Paris at the end of this year.

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There are a number of ways in which investors can take action. At the end of 2014, more than 367 global institutional investors – representing in excess of $24trn (£15.4trn) in assets – called on government leaders to provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge. They also urged governments to develop plans to phase out subsidies for fossil fuels.

The statement, which was the largest of its kind by global investors on climate change, was signed by leading investors, including BlackRock, CalPers, PensionDanmark, Deutsche, South African GEPF, Australian CFSGAM and Cathay Financial Holdings.

The message demonstrates the vital role that investors can play in calling on policymakers to take action on crucial issues. In addition, investors have also been working with energy companies and using their voting rights.

In April, climate campaigners celebrated the fact that 98 per cent of shareholders backed a resolution forcing BP to come clean about the impact that climate change will have on its operations.

The success of the resolution means that BP will now have to tell investors how its portfolio will show resilience to the stronger climate action envisaged by the International Energy Agency.

BP is a company that emits about the same volume of greenhouse gases as Norway. It has advocated for a global economy-wide price on carbon, yet it has also scaled back its investments in renewable energy.

Thanks to the resolution, the oil major will have to be more transparent in the future about how it plans to move towards a greener business model.

Then in May, shareholders at the annual general meetings (AGMs) of Royal Dutch Shell and Statoil voted overwhelmingly for resolutions calling for greater disclosure on performance related to climate change.

The two identical resolutions – ‘Strategic resilience for 2035 and beyond’ – provide for additional transparency around operational emissions management, asset portfolio resilience against 2035 scenarios, low-carbon energy research and development and investment. They also called for executive performance indicators and public policy positions relating to climate change.

Some 98.9 per cent of votes cast at the Shell AGM and 99.95 per cent at Statoil’s meeting supported the resolutions.

The success of the activist shareholders in getting the motion passed has implications for the growing campaign to spurn engagement with companies such as BP and Shell.

Campaigners arguing for divestment say that withdrawing funds altogether is the best way to pressure fossil fuel companies to take a more progressive stance on climate change.