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Analysis, Climate, Governance, Governance & Reporting


CLIMATE ACTIVIST SHAREHOLDERS SHAKE UP TACTICS

Natasha Teja

July 3, 2023

Jeanne Martin, head of ShareAction’s banking programme


BANK SHAREHOLDERS ARE DIVERSIFYING THEIR ACTIVISM TOOLBOX, AMID DWINDLING
SUPPORT FOR RADICAL CLIMATE PROPOSALS.

Climate shareholder activists faced a tough banking annual general meeting (AGM)
season in Europe and the US, in light of shrinking support for climate change
proposals. A decline in enthusiasm for environmental, social and governance
(ESG) proposals has pushed activist shareholders to adopt new tactics outside of
the boardroom, including investor-backed letters or private forums, before
casting an AGM vote.

“Many shareholder proponents feel like if a proposal goes to a vote, it’s sort
of a failure of engagement,” says Heidi Welsh, executive director at the
Sustainable Investments Institute (Si2) in the US. 

This year, activist shareholders ramped up the pressure even before the AGM
season kicked off. The AGM season in the US and Europe typically runs between
March and May with shareholders filing proposals several months before the
meeting.


INVESTOR-BACKED LETTERS ON THE RISE

In February, a group of 30 investors representing more than $1.5tn in assets
under management, sent a letter to Europe’s five largest banks – Barclays, BNP
Paribas, Crédit Agricole, Deutsche Bank and Société Générale – demanding they
stop directly financing new oil and gas fields by the end of 2023.

Jeanne Martin, head of the banking programme at ShareAction, says: “We have seen
investors escalate engagement with their European bank holdings prior to this
year’s AGM season. We didn’t see many shareholder proposals being filed at
European banks.”

Following the investor letter, BNP Paribas committed to halting direct financing
of new oil and gas fields and strengthened its fossil fuel policy. “That very
much shows that actually in some instances you can influence the corporate
strategy of banks outside of AGMs as well,” says Martin.

US pension funds are also adopting this tactic, with a number sending letters to
European banks with oil and gas policies. Martin explains: “It seems that the
contents of these policies are secondary, the mere fact of having [them] in
place seems to be an issue for these investors even though these sector policies
are there to help the bank manage important ESG risks.”


RISE IN US SHAREHOLDER PROPOSALS BUT DROP IN SUPPORT 

The US proxy season has been plagued by an anti-ESG political backlash.
Nevertheless, there was a modest increase in climate change proposals filed at
AGMs across the entire financial sector, rising to 25 in 2023 versus 23 in
2022. 

Welsh says: “We’re at historic highs in terms of the number of shareholder
proposals on the same basic areas as seen in the past: climate change, corporate
political influence, diversity, equality and inclusion. What has changed this
year is that there has been a big drop in support.

“The dip reflects the current political realities in the United States, which
has seen an anti-ESG pushback from state attorneys general in red [Republican]
states.”




SHAREHOLDERS DEMAND INFO ON BACKDOOR FOSSIL FUEL FINANCING

Climate-related proposals at banks this year focused on requests to stop
financing or underwriting new fossil fuel projects, as seen at Barclays’ and
HSBC’s AGMs. But now banks also face pressure to provide more granular detail on
how they finance the fossil fuel industry via “capital markets facilitation”.

This is where banks act as intermediaries for companies that are looking to
raise funds, usually shares or bonds, with the actual capital coming from other
sources. These financial flows have been largely excluded from banks’ climate
targets.

During BNP Paribas’ 2023 AGM, investors requested the bank to incorporate
capital markets activities in its climate disclosures and targets by its 2024
AGM. “Capital markets are a key way that banks help provide financing to
hydrocarbon industries,” says Martin. “But so far, our research has consistently
shown that European banks fail to include those activities in their climate
disclosures and targets.”


BANKS WILL NEED TO STEP UP ACTION ON STRANDED ASSETS

Shareholders also demanded further details on how banks plan to respond to the
potential increase in stranded assets, as the financial sector and governments
take more action to address climate risks. 

Martin at ShareAction tells Banking Risk & Regulation that European banks have
put forth a number of climate commitments and targets without explaining what
activities they plan to finance, how they define sustainable finance, and which
sectors and geographies will be prioritised. She says: “We are calling on
investors to really scrutinise the green finance strategies that are being put
forward by banks.” 

This can come in the form of signed investor-backed letters “as some banks will
be very receptive to this”, says Martin. “They will be very worried about their
reputation or what action shareholders might take after the letter if the bank
fails to comply with their requests.”

The last resort would be divestment, but it is not a strategy activists are
planning to use. Mark Van Baal, founder of activist shareholder group Follow
This, says that “divesting is one of the least effective actions you can take
because if you divest, you will lose all your influence on the company”.




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