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March 2, 2023

Net zero: Wall Street asset owners under intense scrutiny

Shareholder campaigns to get Wall St banks to live up to their net-zero commitments intensify, with many resolutions filed this year.

By Paul Hodgson

Wall St, net zero
Are Wall Street banks and asset managers walking the same path towards net zero? (Photo by Spencer Platt/Getty Images)
  • 17 new shareholder resolutions calling on US members of the Net Zero Banking Alliance to stop financing fossil fuel expansion have been filed for the 2023 proxy season.
  • A set of similar resolutions filed last year fared poorly, some with just single-digit support, because many of the large, mainstream asset management firms felt they were too prescriptive.
  • While none of the banks have challenged the resolutions this year at the SEC, most did in 2021.

A set of shareholder resolutions filed by several shareholder advocates – As You Sow, the Sierra Club, Trillium Asset Management, Green Century and Harrington Investments – are calling on US banks and insurers to phase out financing and underwriting of new fossil fuel projects. They call for the disclosure and reduction of GHG emissions associated with underwriting and request full disclosure of net-zero transition plans.

Specifically, Bank of America, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Wells Fargo and Citigroup are being asked to phase out financing of new fossil fuel projects.

This group, excluding Citigroup, is also being asked to put together a transition plan to achieve net zero and publish it. Insurers Chubb, Travelers and Berkshire Hathaway are being asked to set and disclose GHG emissions targets, while Chubb, the Hartford and Travelers are being asked to phase out underwriting new fossil fuel exploration projects.

Separately, the New York City and State pension funds have also filed several similar proposals at other companies and submitted exempt solicitations in support of the resolutions last year.

Too prescriptive

Last year, similar resolutions received shareholder support in the 10–13% range, due in some part to the fact that US proxy adviser ISS recommended a No vote to all but its faith-based investor clients. Its rival, Glass Lewis, also recommended against it. Both believed the resolutions, in part, were too prescription.

BlackRock, among other asset managers, shared a similar view. In its stewardship report it said: “Although it is still early in the shareholder meeting season, we note that many of these more prescriptive climate-related proposals are attracting lower levels of investor support.”

Kate Monahan, director of shareholder advocacy, Trillium Asset Management, which filed the resolution at Bank of America this year, told Capital Monitor that this particular type of resolution came about because of the change in the attitude of the SEC towards the “ordinary business exception”, which would allow companies to exclude shareholder resolutions if they concerned the company’s day-to-day business activities.

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“We were confident that the SEC would see it as a significant policy issue, preventing companies from claiming it as ordinary business,” Monahan says.

Paul Rissman, co-founder of the environmental non-profit Rights CoLab is on the board of the Sierra Club, the other main filer of the net-zero financing resolutions. After meeting with banks last year, he says their first reaction to the resolutions was that they would have to terminate relationships with all clients.

“[They were concerned] it would prevent them from financing the transition to clean energy because their existing oil and gas clients are trying to finance clean energy projects. Neither of which were true, of course,” Rissman tells Capital Monitor.

Time for a rewrite

Shareholder proponents took note and rewrote the resolutions. The Trillium and Sierra Club Foundation resolutions now call for a policy for a phase-out of financing, rather than a policy to end financing of new fossil fuel expansion, and provide for a carve-out for financing companies making a credible transition to clean energy.

Bolstering hopes for progress, several banks globally have adopted restrictions on new development. HSBC said it would end financing of new fossil fuel exploration, and now Danske Bank has announced a stop to new financing to companies developing new oil and gas fields.

Finally, Mizuho Bank said it will no longer finance new fossil fuel expansion and has set mid-term targets for reducing financed emissions in the oil and gas and thermal coal mining sectors, as well as developing a framework to confirm the credibility and transparency of transition strategies of clients, a key ask of the As You Sow resolutions.

Reclaim Finance keeps track of all such commitments from finance companies and discloses any greenwashing. Unlike the non-US banks above, none of the banks that are targeted in the US, according to Reclaim Finance, have committed to phasing out financing fossil fuel projects.

“When we spoke to them after we filed this year, they did not have much of a response,” says Rissman. “Two of the banks relied on the drug dealers’ excuse – ‘well, if we don’t finance these oil and gas companies somebody else will’. Most [of the banks] challenged the first set of resolutions at the SEC, but none did this year, but we [will] need 15% support this year,” he added, “or we can’t refile.”

Given BlackRock’s statements on the prescriptive nature of last year’s resolutions, Capital Monitor approached two other large asset managers to gauge their policy. Neither had voted for the resolutions. Vanguard did not respond to a request for comment but pointed to its ‘case study’ of a similar proposal at Canadian bank Bank of Montreal.  “This proposal,” concluded the case study, “if fully implemented, would have precluded Bank of Montreal from doing business with certain types of clients or under certain circumstances.” It did not support the resolution.

Likewise, State Street Global Advisors (SSGA) voted against the resolutions last year at all but one of the banks, while abstaining at Wells Fargo, on the grounds that “many of these financial institutions are accounting for climate risk as part of their lending and risk management process” already.

None of the asset managers Capital Monitor spoke to would disclose how they were going to vote on the new resolutions, although Rissman believes they are happier with this year’s iterations.

Rules of net-zero engagement

Danielle Fugere, As You Sow’s president, discussed the non-profit’s engagement strategy: “We have been engaging with the banks for some time… asking them to measure their emissions and disclose their target setting. We didn’t file at all last year with banks, but have returned this year to work with them to find agreement on what would be an appropriate transition plan.”

She explains the reason they had switched to asking for a clearly disclosed transition plan: “They have created protocols to measure their emissions and set primarily sector-based targets. They are moving forward with developing the methods and actions that will help them achieve their goals. These are pieces of what’s needed, but it doesn’t amount to a clear transition plan.”

Fugere listed some of the questions they put forward to the banks:

  • What is the percentage of total emissions associated with customers?
  • Many banks are analysing their customers’ transition plans, so what is anticipated to be achieved through customer transition plans?
  • What do you think green financing might achieve?
  • Are customers who are high emitters and don’t have transition plans going to find it more difficult or costly to obtain financing? What’s the timeline?

Similar target-setting resolutions to those that were implemented at the banks proved successful with insurers, but were refiled this year by As You Sow because it felt they did not make meaningful changes.

“We received a 71% vote at Chubb for a resolution last year asking the company to address whether and how it intends to measure, disclose, and reduce the GHG emissions associated with its underwriting, insuring and investment activities.” Chubb reportedly challenged this year’s resolution at the SEC, claiming it had substantially implemented the request. However, Fugere believes all Chubb had done was announce the creation of a climate policy business unit and suggest that it is creating criteria for underwriting.

“We don’t know what these two announcements are likely to achieve,” says Fugere. “The company is certainly not disclosing or measuring its insured emissions or setting reduction targets.” Chubb did not respond to requests for comment.

“We also had a 58% support vote at Travelers,” adds Fugere, “but they still haven’t said they will align with the global 1.5oC goal. Insurers in the US are a couple of years behind the banks in addressing their scope 3 financed and insured emissions, and they are also less used to dealing with shareholder resolutions.”

While the resolutions at the insurers seem more likely to succeed this year, it remains to be seen how the new bank resolutions will fare. Monahan says that: “Many resolutions take time to build momentum. We know that this is likely to be a multi-year process of building the vote and getting other investors on board.”

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