Big Three: The investors who dominate the ocean economy
Analysis by Capital Monitor has discovered a small handful of influential investors with significant stakes in companies that dominate the ocean economy. Sadly, improving life below water is not high on many investment agendas.
BlackRock, SSGA and Vanguard own $100bn worth of shares in some of the least ESG-friendly companies within the ‘Ocean 100’.
As of 2019, ShareAction scored the three asset allocators poorly on biodiversity investment metrics.
Life Below Water is among the three SDGs reported on the least, according to PwC analysis.
The question of who owns the sea may seem abstract, but data compiled by scientific journal Science Advances has provided some concrete answers. Just 100 companies, dubbed the ‘Ocean 100’, account for 60% of revenues in the ‘ocean economy’, which in 2018 amounted to $1.1trn in revenues.
In its ‘The Ocean 100: Transnational Corporations in the Ocean Economy’ report, Science Advances observes the high concentration of transnational corporations operating in the ocean economy across eight industries – offshore oil and gas, container shipping, shipbuilding and repair, maritime equipment and construction, seafood production, cruise tourism, offshore wind, and port operations – presents serious challenges towards global sustainability goals.
More than three billion people depend on marine and coastal biodiversity for their livelihoods. Yet marine pollution is reaching “alarming levels”, as is ocean acidification caused by the burning of fossil fuels, which international shipping and offshore oil and gas extraction is a large contributor to.
Poor progress in ocean conservation and sustainable use is expected to have a detrimental impact on other international policy goals, including ending poverty and hunger, where the dominance of just a few companies operating in the ocean has the capacity to weaken global sustainability efforts.
And while a lot of responsibility lies on these companies to ensure that their ocean activities are sustainable, those who invest in them have a profound role to play.
Analysis by Capital Monitor has found that a small handful of influential asset allocators have significant stakes in the Ocean 100.
In short, BlackRock, State Street Global Advisors (SSGA) and Vanguard collectively own the biggest proportion of shares in the Ocean 100. Based on our calculations it amounts to 30% of the ocean economy when shares in each company are adjusted to the company’s proportion of revenue in the ocean.
More importantly, and as we outline below, these three investors have significant holdings in some of the largest and least ESG-friendly of those ocean-focused companies.
The UN Sustainable Development Goal 14, Life Below Water, provides a benchmark for how companies can shape their activities in the ocean economy around sustainable practices, and includes targets that apply with differing relevance across the ocean industries, such as reducing overfishing and pollution, tackling ocean acidification, or securing access for small-scale fisheries.
And while companies and investors across the board are broadly incorporating the UN Sustainable Development Goals (SDGs) into their activities, SDG 14 is among the three reported on the least, according to PwC analysis.
Assessing company alignment with SDG 14 is therefore difficult. Capital Monitor has assessed how far each of the companies in the Ocean 100 appear to align themselves with SDG 14 through their public engagement with the UN Global Compact – a non-binding UN pact to encourage businesses and firms worldwide to adopt, and report on, sustainable and socially responsible policies – as well as the clarity of their reporting on SDG 14 in their own sustainability reports.
We found that out of the Ocean 100, 42 are signatories of the UN Global Compact, and of those, 33 are listed as aligning themselves to SDG 14. From assessing their sustainability reports, we found 16 companies, which are not signatories of the UN Global Compact, have made specific references to their alignment with SDG 14.
Another metric for how the Ocean 100 engage in ocean-related sustainability goals is through their membership of ‘green clubs’, where participation across the Ocean 100 is noted in the report as being “relatively low”.
As the Science Advances report notes, who finances the Ocean 100 is a key question, as stakeholders have the ability to influence company policy.
Based on FT Markets data, BlackRock, SSGA and Vanguard have large shares most recently valued at just shy of $100bn collectively in companies that appear to have poor ESG reporting scores, including Chevron and ExxonMobil. ExxonMobil, the oil and gas company, doesn’t cite SDG 14 as a priority SDG and is not a member of the UN Global Compact.
As of 7 May, Vanguard’s 7.72% stake in ExxonMobil was worth $20.4bn. State Street’s 5.71% stake was worth $15bn.
Capital Monitor assessed the calibre of the Ocean 100’s corporate ESG reporting on a series of publicly available data points. These include: CDP scores, UN Global Compact membership, UN Global Compact SDG 14 reporting, general SDG 14 reporting, membership of green clubs, and Transition Pathway Initiative (TPI) ratings.
Capital Monitor contacted all the eight companies on the poorly performing list to ask what their strategy is for targeting SDG 14. The two companies who responded by deadline were Chevron and Huntingdon Ingalls.
Chevron said it touches on all SDGs in its day-to-day operations, citing ongoing work on biodiversity, including a joint venture to remove ghost nets (a fishing net that has been lost or abandoned) in the Caspian Sea. Huntingdon Ingalls did not mention specific SDG 14 targets, but referenced work it had done to minimise pollution in air, water and landfills.
For the top-performing companies in terms of ESG reporting, the three named asset allocators have notably less equity exposure. In the case of the BlackRock, SSGA and Vanguard specifically, a large proportion of their funds are passive and follow set indices. Their exposure is likely to be more of a reflection on the composition of the index than those companies.
Making yourself heard
Of course, this doesn’t preclude investors exerting influence. Some may choose to divest, while others will use their equity holdings to influence the corporate agenda. BNP Paribas Asset Management, for example, launched the world’s first blue economy exchange-traded fund (ETF), which aims to track the ECPI Global ESG Blue Economy Index, in alignment with SDG 14.
Such influence can have mixed results and is partially dependent on how much pressure an investor wishes to, and can, exert. BlackRock, for example, used an investor vote to prompt ExxonMobil to release its Energy and Carbon Summary in 2018. However, in BlackRock’s own reporting, it notes that “despite yearly incremental adjustments, we do not believe that full adherence with TCFD [Task Force on Climate-Related Financial Disclosures] standards has been achieved”, while ExxonMobil continues to have several areas of “significant concern”.
Despite being signatories to a host of responsible investment initiatives like the UN Principles for Responsible Investment, a report released last December by ShareAction claims BlackRock, Vanguard and SSGA, dubbed the ‘Big Three’, have a “very limited approach” to managing ESG risks and opportunities.
More than a ripple?
ShareAction ranks the world’s 75 largest asset managers for their shareholder proposals on ESG issues. Citing their investments in S&P 500 companies, the report ranks these three 47th (BlackRock), 39th (SSGA) and 69th (Vanguard) out of the world’s 75 largest asset allocators for their shareholder proposals on ESG issues. ShareAction also assesses each company for their attention to ESG, broken down into various categories.
The category that encompasses SDG 14 is ‘biodiversity’. BlackRock, Vanguard and SSGA all score a red (the lowest). However, it should be noted that ShareAction only captured data from 2019, and since then at least two of the asset allocators have taken steps with regards to stewardship and engagement on the ocean economy.
For example, in its stewardship reporting from March 2021, BlackRock specifically mentions SDG 14 as an area where it is asking companies to have clear action plans to manage climate and natural capital risks. It is possible Vanguard has stewardship proposals relating to SDG 14, although it did not respond to a request for additional information.
SSGA did respond to Capital Monitor. A spokesperson said: “[We have] been focusing on five specific SDGs where we believe we can make a significant impact: gender equality, affordable and clean energy, climate action, quality education and decent work, and economic growth. We regularly review our thematic approach to engagement. We will continue to research and assess our position on SDG 14, an area that is growing in importance.”
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