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February 28, 2022

Are investors in gas companies doing enough to tackle corporate lobbying?

Evidence that gas companies’ lobbying may have influenced the EU Taxonomy raises the question of whether investors, who have actively opposed such activity, are doing enough to clamp down on the practice – or if their stake in gas is too large.

By Polly Bindman

Dirty money: investors are slowly taking corporate lobbying seriously but their motivations raises questions. (Photo by Motortion via iStock)
  • Gas companies have effectively lobbied for the fossil fuel to be included in the EU’s sustainable taxonomy, raising the question of whether investors are doing enough to clamp down on the practice.
  • Since 2014, investors have supported shareholder resolutions calling for greater transparency on lobbying 58% of the time, and voted against them on 42% of occasions.
  • While investors are increasingly buckling down on climate lobbying, their vested interest in gas being labelled as a transition fuel means their overall position on the issue remains unclear.

The EU’s recent decision to classify nuclear and gas as transition fuels in its newly launched sustainable taxonomy has been the product of years of squabbling and, as new research illuminates, forceful lobbying from European gas companies.

While the EU Taxonomy, developed as a guide for investors to achieve carbon neutrality in the next 30 years, is purely descriptive, and therefore won’t impact their ability to buy or sell gas, it gives the product a valuable stamp of approval. If gas is classified as a transition fuel, fund managers can officially retain it within their sustainable products.

The financial implications of this are significant for investors, and the gas industry more broadly. And so fresh research, which matches coordinated narratives disseminated by gas companies over the past six months with policy shifts in favour of downgrading gas from a harmful to sustainable fossil fuel, raises questions about what investors are doing to intervene.

It also raises questions about their overall stake in the gas industry, and its role in the clean energy transition.

This lobbying is shown to have been conducted primarily by ten major European gas companies, as well as their industry associations. It has consisted of various engagements with EU policies, including the taxonomy, that aim to distance gas from concerns around its carbon footprint while highlighting current political concerns about energy stability. This is according to extensive research published in February by think tank Influence Map, which routinely tracks corporate activities that could affect climate policy.

A typical example of this lobbying is BP’s calling for the inclusion of a “transitional” category in its consultation response to a draft of the EU Taxonomy, providing gas with a “dedicated threshold” as a transition fuel.

Investors against ‘sustainable’ gas

The issue with these narratives for many environmentalists is that they distract investors from the International Energy Agency’s key message: that there can be no new oil and gas investment beyond 2021 in its net-zero scenario. They also forbid the long-term recognition of gas as sustainable. As Will Aitchison, strategy manager at InfluenceMap says, the EU’s decision will now be used as “leverage to gain another policy… so you can see one inroad leads on to another”.

The classification of gas as sustainable is not only problematic for climate activists. Many investors, including the ten largest investors by cumulative percentage stakes in these ten gas companies, have net-zero ambitions. Each of these investors, apart from Capital Group, are part of the Institutional Investors Group on Climate Change (IIGCC), which recently came out against the inclusion of gas in the taxonomy.

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The IIGCC penned a firm open letter to EU member state representatives and Members of the European Parliament (MEPs) on 12 January this year, stating its own members are "strongly opposed to any inclusion of gas within the scope of the taxonomy". Why? Because the "fundamental purpose" of the taxonomy is to "enable capital to be channelled towards economic activities that are fully compatible with the EU’s commitment to climate neutrality by 2050".

IIGCC members are supposed to take a firm stance against such activities, according to the group’s expectations for investors on corporate lobbying. Specifically, they are required to "act in situations where policy engagement is not aligned… with the goals of the Paris Agreement".

However, the success of this corporate lobbying on EU climate policy suggests that investors have not gone far in this endeavour. Historically, data shows, investors have voted against, rather than in support of, shareholder resolutions that demand greater transparency from energy companies on their climate lobbying.

Historic stance against lobbying disclosure

The figures, shared with Capital Monitor by proxy voting data provider Insightia, show that BlackRock, for example, voted against 89% of climate lobbying resolutions between 2014 and 2021.

Further analysis suggests that this pattern is changing though, as investors voted more frequently for resolutions in support of greater transparency of the lobbying undertaken by companies than against them in 2020 and 2021. For example, BlackRock voted for three climate lobbying resolutions in 2021, and just twice against, compared with none for and eight against in 2014.

Yet while the tide seems to be turning, with investors taking a harder stance on anti-climate lobbying, the particular case of gas companies’ lobbying on recent EU policy highlights the troubled dynamic between investors bound to net-zero promises and their stake in the European gas industry.

For example, while these investors are almost all part of the IIGCC, with its firm stance against the inclusion of gas in the taxonomy and strict rules on lobbying, they are also large shareholders in these companies. And none of them, apart from Amundi Asset Management ($2.05trn of assets under management), have any kind of gas exclusion or divestment policy in place. This indicates none of them are intending to exit the sector any time soon, and therefore stand to benefit from gas being classed as sustainable.

An ambiguous message

Capital Monitor contacted each investor to ask for their stance on the inclusion of gas in the EU Taxonomy, as well as for their policies on gas companies lobbying the EU, and climate lobbying more generally.

While none responded on specific companies, three provided somewhat ambiguous statements on their position on gas while reiterating their commitment to holding companies to account for anti-climate lobbying.

Line Aaltvedt, senior communications manager at Norges Bank Investment Management, said that the firm welcomes the EU Taxonomy and the “wider efforts aimed at improved corporate disclosures on sustainability”. While the communications manager would not comment on the inclusion of gas in the taxonomy specifically, Aaltvedt said the firm expects companies to "make plans and pursue targets that take account of the Paris Agreement".

The stewardship and ESG strategy team at State Street Global Advisors provided a joint statement on behalf of the company, arguing that while “it’s hard to argue that gas would not be needed for some time as a bridge source of energy”, net-zero pathways “don’t allow for large utilisation rates of gas and especially not an expansion of gas in their models”.

This is why State Street Global Advisors defines gas as a “brown activity” in its own investment climate models. The company, however, has “sympathy for the challenge of accounting for the fact that gas will still be needed as a bridge for some time”, according to its stewardship and ESG strategy team.

BlackRock would not comment directly, though a communications officer pointed Capital Monitor to this year’s letter to CEOs from Larry Fink, who emphasises the role that "traditional" fuels like gas will play during the transition to net zero.

Fink says in his letter: "We need to pass through shades of brown to shades of green" and that any plan "that focuses solely on limiting supply and fails to address demand for hydrocarbons will drive up energy prices for those who can least afford it, resulting in greater polarisation around climate change and eroding progress".

Capital Monitor also contacted each of the gas companies in the study. A spokesperson from Shell pointed to its lobbying disclosures on its website, and added that that is where it sets outs its global framework for advocacy with governments, international organisations, industry associations, coalitions and other stakeholders, "including InfluenceMap".

A spokesperson from Equinor highlighted the importance of the EU Taxonomy, and said that while InfluenceMap’s work is important, the company finds it "difficult to recognise the conclusions of its report based on the engagement we have had". The spokesperson added that it makes "perfect sense that the [European] Commission has agreed that natural gas fit into the transition category of the taxonomy".

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