Last week, executives from Citibank and JPMorgan sat on a panel at a New York City business conference hosted by the news agency Reuters to discuss “the decarbonization pathway for finance.” But as they were expounding on what their banks were doing concerning climate change, an activist got up and interrupted them.
“Citibank and JPMorgan are two of the world’s — THE TOP TWO financiers of fossil fuels in the world,” she told the room. “You’re telling me that you people are going to lead the way to sustainable finance?”
It’s no longer just activists confronting executives with these kinds of questions. This week kicks off a new season of shareholder activism at the annual general meetings of banks, oil companies, and other publicly traded corporations. These meetings are typically a time for companies to convince investors that their money is in good hands. But increasingly, shareholders are using these meetings to demand more information on how climate change and the transition to clean energy could affect their investments, and what companies are doing to manage climate-related financial risks.
“Investors are saying we can’t conduct business in a world that is on fire, that has heatwaves and insufficient water,” said Danielle Fugere, president of the shareholder advocacy group As You Sow. “And I do think companies are beginning to understand that it’s in their interest to take action and that shareholders support that action.”
JPMorgan already faced a reckoning in 2020 when shareholders pressured the company to oust Lee Raymond, the former CEO of Exxon Mobil, from its board. The bank demoted Raymond from the position of lead independent director, and he eventually resigned from the board entirely at the end of 2020. Last year, in one watershed week, investors voted to replace three directors on Exxon’s board on the grounds that the company had refused to accept that fossil fuel demand would decline and to make transition plans — and was underperforming financially. At Chevron, 61 percent of shareholders voted in favor of a resolution asking the oil giant to set a target to lower the emissions that come from the use of its products, also known as “scope 3” emissions.
This year, shareholders are coming armed with more proposals.
On Tuesday, bank directors at Citibank, Bank of America, and Wells Fargo will face votes on shareholder resolutions that demand they adopt financing practices that align with limiting global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit). Goldman Sachs will face the same resolution on Wednesday, and JPMorgan’s judgment day will come in May.
More specifically, shareholders are asking for plans aligned with the International Energy Agency’s net-zero pathway, which states in no uncertain terms that there should be “no investment in new fossil fuel supply projects” beginning immediately in order to achieve the 1.5 degree goal. Analysis from the international organization, which monitors the world’s oil supply, shows that the world can complete the transition to clean energy without tapping new oil and gas reserves, but financial industry watchdogs have found that almost no banks have passed policies prohibiting lending for fossil fuel expansion. A recent report by the corporate watchdog InfluenceMap found that the top 30 financial institutions provided $739 billion in fossil fuel financing in 2020 and 2021, about 20 percent of which went to oil companies that are expanding their reserves.
Shareholder resolutions are nonbinding, but if enough investors vote in favor of them, it’s in the bank or company’s interest to respond. After facing immense pressure from shareholders at last year’s meeting, both Exxon and Chevron updated their emission reduction targets — but just barely.
Exxon, whose CEO previously dismissed the idea of setting a long term net-zero goal as a “beauty match,” finally did just that in January. However, the plan only applies to emissions that come from its operations, not from the oil and gas it produces. Chevron also announced an “aspiration” to reduce its operational emissions to net-zero by 2050 last fall. The pledge included a goal of reducing the emissions intensity of its products by 5 percent, meaning it would try to lower emissions that occur in the extraction and processing of oil and gas, rather than reduce its oil and gas output in any absolute sense.
“They’re setting net-zero goals and ignoring the vast majority of the emissions associated with their products,” said Fugere. “Both companies are unwilling to say, ‘Yes, we will transition.’”
Exxon and Chevron are facing several new demands at their annual meetings on May 25. A Dutch shareholder action group called Follow This has filed resolutions requesting that the companies set medium- and long-term targets to reduce emissions across every aspect of their business, including from the oil and gas they sell, that are consistent with achieving the goals of the Paris Agreement. A separate resolution asks the companies to report on how their business would be affected if the rest of the world decided to follow the International Energy Agency’s pathway to net-zero.
“What happens if the world actually does achieve net-zero goals?” Fugere said. “What’s the impact to your financial statements? Your retirement obligations?” If a proposed Securities and Exchange Commission rule on climate-related risk is finalized, all companies will be required to disclose the answers to these questions.
Though resolutions are nonbinding, shareholders have another, more forceful lever they can pull if they feel their concerns are being ignored — board director election votes. A nonprofit called Majority Action is organizing campaigns for shareholders to oust board members at several banks, oil companies, electric utilities, and insurance companies this year on grounds of failing to respond to shareholder requests. Chevron is a primary target.
“When you have companies like Chevron that have already faced the majority vote from shareholders and then actually refused to do the thing that that majority vote on that proposal called on them to do,” said Eli Kasargod-Staub, the co-founder and executive director of the group, “we have a shareholder rights issue. If companies are refusing to see these majority votes, well, then that’s a breakdown in this essential communication mechanism between shareholders and the governance of the corporation.”
The success of any resolution or board election campaign will rest almost entirely on the support of major asset managers like Blackrock, Vanguard, and State Street Advisors. These fund managers control a vast number of shares, and Kasargod-Staub said they have the “swing votes.”
It’s unclear how they will vote this year. Blackrock’s 2022 voting guidelines say the firm does not consider scope 3 emissions commitments “essential to our support for directors.” Vanguard’s guidelines are more vague, mentioning support for “comprehensive and effective emissions disclosures and climate-related metrics and mitigation targets, such as those aligned with the goals of the Paris Agreement.” State Street’s guidelines simply require “targets for reducing” greenhouse gas emissions.
None of those asset managers have implemented policies to curb their support for fossil fuel expansion. The nonprofit Reclaim Finance recently published a report finding that the top 30 asset managers have at least $550 billion invested in oil, gas, and coal companies with plans to expand production.
But another powerful force is becoming more active in rallying shareholders to vote for climate action — pension funds, which are major institutional shareholders at banks. New York Comptroller Tom DiNapoli, who manages his state’s pension plan for government employees, filed a notice with the Securities and Exchange Commission earlier this month urging other pension funds and institutional investors to vote in favor of climate resolutions at the major banks.
“All of these financial institutions have made net-zero commitments,” it said, “but to ensure that those commitments are credible, they need to adopt policies that eliminate financing of new fossil fuel exploration and development.”
