• Atmospheric CO2 /Parts per Million /Annual Averages /Data Source: noaa.gov

  • 1980338.91ppm

  • 1981340.11ppm

  • 1982340.86ppm

  • 1983342.53ppm

  • 1984344.07ppm

  • 1985345.54ppm

  • 1986346.97ppm

  • 1987348.68ppm

  • 1988351.16ppm

  • 1989352.78ppm

  • 1990354.05ppm

  • 1991355.39ppm

  • 1992356.1ppm

  • 1993356.83ppm

  • 1994358.33ppm

  • 1995360.18ppm

  • 1996361.93ppm

  • 1997363.04ppm

  • 1998365.7ppm

  • 1999367.8ppm

  • 2000368.97ppm

  • 2001370.57ppm

  • 2002372.59ppm

  • 2003375.14ppm

  • 2004376.96ppm

  • 2005378.97ppm

  • 2006381.13ppm

  • 2007382.9ppm

  • 2008385.01ppm

  • 2009386.5ppm

  • 2010388.76ppm

  • 2011390.63ppm

  • 2012392.65ppm

  • 2013395.39ppm

  • 2014397.34ppm

  • 2015399.65ppm

  • 2016403.09ppm

  • 2017405.22ppm

  • 2018407.62ppm

  • 2019410.07ppm

  • 2020412.44ppm

  • 2021414.72ppm

  • 2022418.56ppm

  • 2023421.08ppm

News & Views

Brunel’s Ravishankar: preventing stewardship strategies from becoming paper tigers

Vaishnavi Ravishankar, head of Stewardship at Brunel Pension Partnership takes stock of this year's AGM season arguing that climate stewardship is at an inflection point where alignment between managers and owners has to become a priority

By Vaishnavi Ravishankar

The investment relevance of climate change is undisputed for asset owners. As the FMLC paper on fiduciary duties points out “Sustainability and the subject of climate change may in fact develop or deepen further our appreciation of what represents return and risk. They may help us understand further the importance of time horizons. Changes in return over time and systemic risk are among the matters that have to be understood well.”

This means asset owners that outsource their asset management need to pay close attention to how that priority is reflected in their managers’ stewardship approach. Patchy implementation that does not properly account for the expected intensity, scale and timeframe of the desired change undermines not only asset owner’s climate commitments but also member outcomes.

The last proxy season heightened asset owner concerns that managers were failing to properly challenge companies rolling back on their climate commitments. There was a general unease that energy companies had taken this to mean that they had shareholder support for their climate U-turns.

This triggered discussions about potential misalignment in asset owner expectations and manager practices on climate stewardship. Academic research was commissioned to examine the problem. It confirmed that the misalignment did exist and demonstrated that it materialised in the form of inconsistent and short-term focused engagement, opaque or generic voting rationale and a stewardship approach that presented voting and engagement as mutually exclusive practices.

Addressing misalignment

Continued misalignment on climate stewardship can present a serious threat to long-term beneficiary interests and must be addressed through mutual dialogue. After all, climate change is a real and growing threat to sustainable portfolio returns.

A stewardship strategy that undermines a robust response to climate action may exacerbate transition risk at an asset level and slow the pace and scale of progress needed to address the systemic impacts in the real economy. In essence, there is a real risk that stewardship strategies that are mere paper tigers may end up pulling the market in the wrong direction.

Given several examples of companies demonstrating a blasé approach to shareholder asks on climate this proxy season, asset owners must address the misalignment question head on.

Exxon is a case in point. The oil major took an aggressive stance by suing its own shareholders, Arjuna Capital and Follow This, in a bid to thwart enthusiasm around climate activism. Many responsible investors, including Brunel, came out in strong opposition to the company’s unusual approach to bypass SEC. Exxon’s position was not only a threat to shareholder rights but a tactic that could have a chilling effect on investors’ ability to put forward climate change-related resolutions. Despite those public declarations of support, Exxon’s directors were re-elected with an average support rate of 95% (lowest being 87%).

Similarly, only 19% of votes were cast in favour of a shareholder resolution at Shell’s AGM that called for interim scope 3 targets. The management painted the resolution as being “against both good governance and shareholders’ interests”. The narrative only amplified concerns about the company’s climate credentials, concerns already triggered by the decision to retire its 2035 emission reduction targets.

Focusing on the tallies of support and opposition may be too simplistic in the world of proxy voting. I fully acknowledge that there is a lot of nuance that doesn’t get captured in these numbers, but it is important to scrutinise the decisions of our asset managers to understand what’s gone wrong in these instances. Being at the top of the investment chain means we must regularly raise questions about controversial votes, particularly where a manager has decided not to vote assertively on climate matters – and ensure we get a strong rationale to support the voting decisions along with reinforcing records of engagement. We can’t afford to wait and watch for years, when the metaphorical climate clock is ticking.

Climate escalations are most valuable when they can change the course of the business. It is imperative then that the slowly-slowly approach to stewardship must be well justified at inflection points – and arguably we are at one now. The question to ask then is: if not, why not. 

Policy challenges

We acknowledge, alongside other investors that the public policy environment is not conducive for setting strong climate targets. However, what are we doing to challenge the status quo and to enable a policy environment more conducive to the transition? Let’s challenge companies to set out their ambition and explain the policy dependencies that would inhibit their achievement. That will send a powerful signal to the policymakers and provide a rationale to their investors.

Obstructive climate lobbyists with the backing of trillions of dollars have long championed their own cause – it is time for investors that are supportive of the transition to take charge of the climate debate. We need to scrutinise corporate lobbying positions to ensure that they are consistent with public promises on climate, directly and through trade associations. Calls for transparency on what is being said and what is being done on climate lobbying have never been more important given the backdrop of the increased politicisation of ESG in recent years. We urgently need companies to follow through on their public climate pledges.

Stewardship – iterative process

I don’t believe there is a silver bullet to effective stewardship – we learn by doing. It is important, however, that the change objective associated with stewardship is transparent, that efforts are consistent and long-term, and that we are able to track progress against milestones.

We must also acknowledge that engagement progress at companies won’t be linear, and so it is reasonable to employ multiple strategies over time – but asset owners must be able to decipher the range of tools at the manager’s disposal, their appetite to deploy them and their level of tolerance for underperformance.

The anti-ESG backlash and the dominance of geopolitical conflicts have brought the tussle of short vs long-term investment considerations to the fore. Let’s have an honest conversation about the trade-offs and the challenges of diverging client positions. And equally, let’s clarify what pace of change on climate is needed to meet our fiduciary responsibilities to our clients and beneficiaries.

Without a constructive dialogue, momentum on climate action will only dwindle. We need to set out our case and expectations with clarity so that managers have a strong mandate for addressing climate considerations in our portfolios.

More on this:

Proxy season stocktake: what shareholder votes tell us about stewardship

Brunel’s Ravishankar: preventing stewardship strategies from becoming paper tigers

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