Our Take: Funds Seek Measured Approach on ESG

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Republicans and Renewables

US institutional investor BlackRock last week took some of the wind out of the environmental, social and governance (ESG) activist movement’s sails when it said it would likely support “proportionately fewer” climate-related shareholder resolutions this proxy season. BlackRock backed 47% of ESG shareholder proposals last year as investor momentum behind the energy transition began to build. Energy Intelligence does not believe the BlackRock rethink means such institutions want oil companies to abandon or scale back their plans, but instead reflects a conviction that the transition must proceed at a measured pace to avoid chaos.

  • BlackRock whose vast portfolio includes stakes in Exxon Mobil, ConocoPhillips, Shell and BP believes many resolutions coming to a vote in 2022 “are more prescriptive or constraining on companies and may not promote long-term shareholder value.” High energy prices, supply concerns and macroeconomic uncertainty as a war rages in Europe are causing financial institutions to give close attention to the pace of the transition, even as they flesh out and start to implement their own net-zero strategies. In a producing country like the US — where banks can still finance hydrocarbon projects with modest pushback — they may want to keep the oil and gas flowing for longer and delivering attractive returns for their clients.

  • New York-based BlackRock noted how climate-related shareholder resolutions have been winning lower levels of support this year. At ConocoPhillips’ annual general meeting (AGM) on May 10, for example, a minority of 39% of shareholder votes backed a Follow This resolution calling for Paris-aligned emissions reductions, down from 58% on a more generic Follow This proposal last year.

  • Although we note shareholder votes are not always the primary tool of engagement, particularly in Europe, they serve as an important barometer for wider investor thinking. Support for activist proposals at European majors has also been falling, judging by the BP and Equinor AGMs. This signals that investors see companies as being more responsive on such matters, allowing them to discuss strategic direction outside of forced votes, and that alignment between large financial institutions and activists has widened again. Whereas activists are upping their demands for faster transitions, many large funds are now prepared to give company executives time (while monitoring progress closely) and back in-house climate proposals put forward by the majors themselves.

  • European funds tend to be more active on climate issues — partly for cultural reasons and partly reflecting Europe's status as, essentially, an energy consumer. But there are signs of a similar trend there, too. The Church of England Pensions Board — a BlackRock ally in last year’s Exxon shareholder rebellion — has decided to ease off on its supply-side engagement role and focus on the demand side instead, particularly automakers. Its objective may be somewhat different but also reflects a desire for greater alignment to avoid the negatives of a disjointed, chaotic transition.

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