By Cary Springfield, International Banker
On April 23, investors in Standard Bank called on the South African lender to disclose its climate-change commitments ahead of its annual general meeting (AGM) on May 27. The group of shareholders included three asset managers—Aeon Investment Management, Abax Investments and Visio Fund Management—along with shareholder activist organisation Just Share, all of which jointly co-filed a non-binding advisory shareholder resolution requesting that Standard Bank publish a report detailing its strategies and targets to reduce its exposure to fossil-fuel assets for the year ending December 31, 2021. In doing so, the filing provides another example in a steadily growing list of actions being taken by activist shareholders demanding greater levels of accountability from financial institutions with respect to their efforts to combat climate change.
Just Share’s director of climate engagement also added that by not providing such a strategy, it becomes impossible for shareholders to accurately assess Standard Bank’s commitments to align its lending practices with the 2015 Paris (Climate) Agreement. “This non-binding resolution simply calls for the bank to disclose whether it has such targets,” he said, adding that there is no reason why the lender should not have already agreed to provide such a document. And while shareholders have recognised that Standard Bank has previously provided its policies on coal financing, “none of the bank’s disclosures provide any strategy or measurable targets”. As such, shareholder groups are applying consistently more pressure on the global banking system to increase transparency on issues that impact climate, such as its exposures to fossil-fuel assets.
Indeed, a number of banks are now experiencing similar degrees of pressure to provide detailed disclosures. At Royal Bank of Canada’s annual shareholder meeting on April 8, 31.05 percent of shareholders voted in support of a proposal filed by SumOfUs—a global non-profit advocacy organization campaigning for greater corporate accountability—asking the bank to adopt company-wide, quantitative, time-bound targets for reducing greenhouse-gas emissions. “The (RBC) vote was significantly higher than expected, especially considering that the proposal has no advisory support from ISS or Glass Lewis. We are happy to see that shareholders have given RBC a strong mandate to go further, faster on climate,” said Amelia Meister, SumOfUs’s senior campaigner.
And earlier in the year, some of HSBC’s largest shareholders, led by campaign group ShareAction, called on the UK bank to strengthen its commitments to cutting fossil-fuel-linked lending and turn its climate ambitions into tangible targets. “As Europe’s largest bank and the second-largest provider of fossil fuel financing, HSBC has the unique opportunity to help lead the financial services sector towards Paris-aligned commitments rather than mere ambitions,” said Jason Mitchell, co-head of responsible investment at the world’s largest publicly listed hedge-fund company, Man Group.
In this case, the investors, who together manage $2.4 trillion in assets between them, seem to have achieved a modicum of success. In March, HSBC announced a resolution that commits it to phase out the financing of coal-fired power and thermal-coal mining by 2030 in the European Union (EU) and OECD (Organisation for Economic Co-operation and Development) and by 2040 elsewhere. The resolution will be put to the vote at HSBC’s AGM on May 28. “Today’s announcement shows that robust shareholder engagement can deliver concrete results and sets an important precedent for the banking industry,” Jeanne Martin, senior campaign manager at ShareAction, said in response to HSBC’s move. “Net zero ambitions have to be backed up with time-bound fossil fuel phase-outs, and today HSBC has taken an important step in that direction.”
For shareholder action to be effective, it requires a majority—or at least a substantial block of votes—to ensure that the bank changes course and winds down its fossil-fuel exposure. This is proving easier said than done, however. Most recently, a group of Barclays shareholders coordinated by Australian non-profit organisation Market Forces filed a resolution in February calling on the UK bank, which is the biggest fossil-fuel banker in Europe, to reduce its financing of coal, oil and gas activities in line with the goals set out in the Paris Climate Accords. But in early May, only 14 percent of shareholders lent their support to such a proposal. Such a low number is clearly a setback for environmentalists, but perhaps even more disconcerting was that Barclays advised shareholders to vote against the resolution prior to the meeting.
As Adam McGibbon, Market Forces’ UK campaign lead, explained, this figure meant institutional investors had “some serious questions to answer” about their commitment to climate-change action. “Having seen Barclays’ climate policies fail to rein in its investments in fossil fuels in the last year, to have investor support for climate change action drop this year compared to 2020 smacks of either indifference or incompetence from many major investors,” McGibbon said. And according to Bank On Our Future, a network of organisations and social movements committed to pressuring the UK’s biggest financial players with regards to climate change, despite saying it wants to align its operations with the Paris Agreement, “Barclays is not doing nearly enough to meet that ambition. For instance, Barclays has yet to commit to ending its funding of coal, oil and gas—an absolute must to meet the Paris targets”.
Pressure can also be applied through formal legal channels. Shareholders of the Commonwealth Bank of Australia (CBA) sued the bank in 2017, alleging it had violated the Corporations Act 2001 with the issuance of its 2016 annual report, which failed to disclose climate-change-related business risks, particularly the possible investment in the controversial Adani Mining’s Carmichael coal mine. And before the court issued any decision on the case, the shareholders withdrew their suit after the CBA released its 2017 annual report, in which the bank acknowledged the risk of climate change and pledged to undertake climate-change scenario analysis to estimate the risks to the CBA’s business.
And it’s not only shareholders at commercial banks who can take action. Development bank shareholders—often in the form of entire countries—also have crucial roles to play in ensuring the lending practices of such banks are environmentally sound. “We can no longer afford big fossil fuel infrastructure anywhere. Such investments simply deepen our predicament. They are not even cost-effective,” UN Secretary-General António Guterres said in a recent speech at the 2021 Petersberg Climate Dialogue. “So, we need the shareholders of multilateral development banks and development financial institutions to work with the management of these banks on funding a low-carbon, climate-resilient development that is aligned with the 1.5-degree goal.”
Part of the problem seems to lie in the fact that many banks still seem to be engaged in the practice of “greenwashing”; that is, conveying to the public a misleading impression that they are more committed—and taking more action—towards curbing their environmentally harmful activities than is the case in reality. According to US environmental organisation Sierra Club, the US-based lender Bank of the West may well have been engaged in just such a practice. Primarily through its “What on Earth” slogan, its “climate-conscious checking account” and its “1% for the planet” credit card, the bank—a wholly owned subsidiary of French investment bank BNP Paribas—claims to have “the strongest environmental stance of any major US bank”. But according to the recently released Banking on Climate Chaos report, BNP Paribas raised its funding of fossil-fuel projects by a staggering 142 percent between 2016 and 2020 and also hiked its lending to fossil-fuel companies by 41 percent between 2019 and 2020. Such numbers make BNP Paribas the world’s biggest funder of offshore oil and gas projects.
Bank of the West did respond to Sierra, noting that it has “the strongest restrictive financing policies of any major U.S. bank” and that it has less than 1-percent fossil-fuel exposure in its entire portfolio. “We will continue to be transparent about what we do and do not finance and work diligently to address the urgent role finance plays in climate change.” Nonetheless, such commitments do not hide the fact that the bank’s parent company is among the world’s most serious climate offenders, and, as such, a level of greenwashing appears to have been adopted. “Banks are admitting that fossil fuel companies are major climate emitters, but they are taking no immediate steps to phase out the financing of fossil fuels across the board,” Ginger Cassady, the executive director of Rainforest Action Network (RAN) and the main publisher of the report, told Sierra. “Many of those banks are making 2050 commitments to align with the Paris Agreement when they need to act now on fossil fuels. Any bank that makes a ‘net zero by 2050’ policy commitment and then treats it as a license to continue with business as usual is guilty of greenwashing.”
The report itself analysed fossil-fuel financing activities by the world’s 60 largest commercial and investment banks—aggregating their leading roles in lending and underwriting of debt and equity issuances—and found that the lenders poured a total of $3.8 trillion into fossil fuels from 2016 to 2020. “Seventeen of the 60 banks have recently pledged to achieve ‘net zero’ financed emissions. But our analysis shows that for many of the world’s worst funders of fossil fuels, these plans so far are dangerously weak, half-baked, or vague,” according to the report, which listed JPMorgan Chase as the world’s worst banker of fossil fuels over this time period, despite its funding in this area having dropped significantly last year. Citibank is the second-worst fossil bank, followed by Wells Fargo, Bank of America, Royal Bank of Canada and MUFG (Mitsubishi UFJ Financial Group), while Barclays is the worst in Europe and Bank of China (BoC) the biggest offender in China.
Convincing such banks to transform their ways with respect to fossil-fuel financing remains a challenging prospect in most cases. Nonetheless, small battles are being won by activist shareholder organisations, which signals that changes can be achieved, albeit at a gradual pace.