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How BlackRock, JPMorgan and State Street can show they’re committed to climate action

Large U.S. asset managers must nudge companies to act on the clean energy transition. Climate-conscious proxy voting is one way to do so.

Negotiation

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The recent departure of several high-profile firms representing $14 trillion in assets under management from Climate Action 100+, the world’s largest investor-led initiative to engage corporate emitters, raises concerns about follow-through by U.S. asset managers on climate stewardship.

Company engagement, backed up with escalation measures such as climate-aligned proxy voting, is the most impactful action investors can take to reduce emissions in the real economy, according to firms such as State Street, one company that just exited Climate Action 100+. 

Engagement starts with direct communication between investors and investee companies to express concerns to those who can address them — a company’s board and executive leadership. The 2024 proxy season this spring will show whether investors are willing to use those dialogues to steward climate action and other ESG priorities.

From disclosure to decarbonization

That will be a requirement for companies on the Climate Action 100+ roster. Phase two of the initiative asks investor members to take "action to actively reduce greenhouse gas emissions across the value chain … and implement transition plans to deliver on robust targets." 

For investors, that means demanding that the 170 companies on the Climate Action 100+ target list demonstrate meaningful action on decarbonization — rather than just disclosing their emissions and intentions.

That requirement appears to be what recently compelled State Street, JPMorgan, BlackRock and PIMCO to leave the initiative.

The firms were apparently skittish about the Republican-led anti-ESG onslaught that swelled in 2023, including antitrust tantrums targeted at nonprofits championing sustainable investment across the financial industry. 

The defections "add to the evidence that U.S. asset managers, in particular, are much more comfortable demanding climate disclosures from companies than specific action," Lindsey Stewart, director of investment stewardship research at Morningstar, recently commented.

To put it more bluntly, the decision of firms to address climate change through non-binding initiatives such as Climate Action 100+ "was always cosmetic," as Columbia Business School Professor Shivaram Rajgopal told the New York Times.  

From vocalizing support to voting in support

It is abundantly clear why investors must focus on corporate accountability, regardless whether they do so via a group initiative. Most of the largest emitters remain significantly misaligned with the Paris Agreement’s goal of holding global temperature increases under 1.5 degrees Celsius. 

Yet, 2023 brought a lag in investors’ pursuit of accountability as measured by their voting records. Investor support for ESG proposals sank at U.S. companies, with U.S. asset managers claiming the proposals had become overly prescriptive. Those claims aren’t very credible, according to a representative from a large American asset owner. 

Consider that many resolutions refiled in 2023 from 2022 earned significantly lower support, despite being worded exactly the same. Classes of resolutions that did very well in 2022, such as racial equity audits, received few or no supporting votes in 2023.

Climate Action 100+ investor members flag resolutions they would like fellow members to support.

"Last year, we had 210 engagements. Ninety-nine companies said, ‘Thank you for identifying the risk; we'll take action,’ and 111 didn't — so we escalated [filed resolutions]," said Andrew Behar, CEO of As You Sow, one the most prolific filers of ESG proposals. 

It’s a promising anecdote about the power of engagement accompanied by a clear escalation path.

Although it’s too early to predict how large U.S. asset managers will act during this year’s proxy season, "their votes will speak volumes about whether their statements to address climate risk were sincere or just an attempt to capitalize on investor interest," said Leslie Samuelrich, president of Green Century Capital Management, another prolific ESG shareholder resolution filer and supporter.  

The need for active ownership isn’t limited to investors working to transition big oil or industrial companies. Unilever and Procter & Gamble, both regularly elevated as sustainability leaders, don’t meet any of Climate Action 100+’s criteria to demonstrate they are decarbonizing their capital expenditures. Investor votes that ignore this shortcoming will send the wrong signal to company boards mulling how they should invest in their own transition.

If 2024 is to become the year of exponential climate action during which the emissions gap — or "emissions canyon," as United Nations Secretary-General Antonio Guterres describes it — begins closing, investors must show they’re on board through their votes. 

Editor's note: This story was updated March 1 to clarify how Climate Action 100+ members flag resolutions.

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