CLIMATE ENGAGEMENT
Our 2021 Q2 UNIE report highlights engagement news and analysis from the past three months. From success stories, new partners and allies, to groundbreaking international reports, the second quarter of 2021 proved to be a space for important victories, groundbreaking reports, and network growth.
CLIMATE TRANSITION
Shareholder engagements send a strong pro-climate message to oil and gas
As recollected by SHARE’s Associate Director of Climate Advocacy, Jennifer Story, investors sent a “wake-up call” to the North American oil and gas sector at the annual meetings of both Exxon (May 26) and Phillips 66 (May 12).
In both cases, a majority of shareholders approved resolutions calling on the companies to align their political spending with the goals of the Paris agreement.
Shareholders of Exxon staged an ESG-coup, electing a quarter of the company’s board from a rival slate, based on a promise to improve climate performance.
SHARE, on behalf of the Fonds de Soldarite FTQ, co-filed the proposals at Exxon and Phillips 66, as part of a coalition of investors organized by the CA 100+. This is the second straight year that SHARE and the Fonds have filed, and in both cases, the voting result increased considerably. The proposal received 56 per cent support at Exxon, and 63 per cent support at Phillips 66.
SHARE has been engaging with Phillips 66 since 2019. The company is one of the largest emitters in the US, and lags significantly behind its peers in terms of disclosing whether or its memberships are aligned with Paris goals.
All the while, the company has paid more than $14 million to 18 industry associations including the American Fuel & Petrochemical Manufacturers, which has taken hostile positions against climate regulations, including the fuel efficiency standards. They have also been found to fund a group actively involved in climate change denial.
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Exxon, meanwhile, has a decades-long record of undermining climate policy. Even in the weeks since the company’s AGM, Exxon has been rocked by an undercover expose, revealing candid comments about its lobbying activities.
These two votes may have been a wake-up call, but “the defeat of three board directors at Exxon set off a fire alarm that can’t be ignored,” Story continued. In a dramatic shareholder meeting that was adjourned mid-way through – reportedly to allow management to lobby shareholders to switch their votes – a campaign led by activist hedge fund Engine No. 1 pulled off an “ESG-coup”, according to Story. Engine No. 1’s campaign has made headlines internationally, and will send Kaisa Hietala, Gregory Goff and Alexander Karsner to the board table with a mandate for climate action.
According to SHARE Director of Shareholder Advocacy Anthony Schein, “with the combination of events this Spring – historic shareholder votes, legislative and policy commitments from the Biden administration, the Trudeau government, and the European Union, and the mounting pressure ahead of COP 26 – any oil & gas executive who is not making aggressive plans to transition their business should be looking for the exits.”
SHARE is levelling up its climate programs, with growing participation from universities in the University Network for Investor Engagement, and a collaborative engagement program planned to launch in September, 2021. According to Schein, investors in Canada and around the world are looking for “every strategic opportunity to accelerate the climate transition. After decades of inaction, there is momentum for change and we won’t let up.”
UNIE IS GROWING
Welcome to the University Pension Plan
We’re happy to announce that the University Pension Plan has joined the UNIE program.
The University Pension Plan is a new jointly sponsored defined benefit pension plan (JSPP). The Plan became operational on July 1, 2021, and at that time its investments are expected to be valued at $10.5 billion. The Plan brings together the pension plans of Queen’s University, the University of Guelph and the University of Toronto, and will add Trent University in January 2022.
UPP will also participate in SHARE’s broader engagement program to address a full spectrum of environmental, social and governance issues in Canadian, U.S., and global equities. SHARE’s engagement programs now include investors with more than $90 billion in assets under management.
CLIMATE FINANCE NEWS
Appointed Sustainable Finance Action Council a welcome development
The long-awaited Sustainable Finance Action Council (SFAC) was established by the federal government on May 12, with Kathy Bardswick (former CEO of The Cooperators) installed as its first Chair.
The SFAC “will bring together public and private sector financial expertise to support the growth of a strong, well-functioning, sustainable finance market.” The Council, which will include a group of finance sector leaders from across the country, will “make recommendations on critical market infrastructure needed to attract and scale sustainable finance in Canada, including: enhanced assessment and disclosure of climate risks and opportunities; better access to climate data and analytics; and common standards for sustainable and low-carbon investments.”
First proposed by the federal Expert Panel on Sustainable Finance, the Council will help drive and focus action on sustainable finance at the federal level, and should help in the development of a supportive legislative, regulatory, oversight and policy environment for our collective work over its three-year mandate.
“We welcome the creation of the SFAC, which will play a critical role in guiding therapid and orderly transition that is necessary to build a low carbon economy in Canada in line with our Paris commitments,” said Jennifer Story, Associate Director, Climate Advocacy as SHARE. “Our own climate programs are levelling up as Canadian investors work to accelerate the transition.” SHARE now represents a network of investors with assets under management valued at more than $90 billion.
IMPROVED REGULATIONS
US Securities Exchange Commission pivots from Trump-era regulations and facilitates climate and human capital disclosure
Post inauguration, the US Securities Exchange Commission (SEC) moved quickly to initiate consultations on a climate-related disclosure regime for US issuers, with a focus on the disclosure of consistent, comparable, and reliable information on climate change.
The wide-ranging consultation drew thousands of comments (though some were form letters) and a considerable number of thoughtful, detailed prescriptions for new rules for climate-related disclosure. Amongst the issues raised were concerns with a narrow focus on issuer “materiality” which might limit the range of disclosure (concerns echoed by Commissioner Allison Herren Lee in a recent speech) as well as proposals to incorporate just transitions in the disclosure requirements so that the human element is also considered.
This last point dovetails nicely with the SEC’s other project to review human capital disclosures (including workforce diversity and corporate board diversity) later this year, with a view to developing rules in this area.
“After four-years of backsliding and attacks on investor rights under the Trump Administration, Chair Gary Gensler’s approach has been a breath of fresh air.” Said Kevin Thomas, SHARE CEO.
SHARE did not submit its own separate comment letter on climate disclosures, preferring instead to amplify a joint submission coordinated by Ceres.
INTERNATIONAL REPORTING
What does the International Energy Report mean for investors?
The pace of change necessary to address the climate crisis is light speed, and new and important policy papers are being published weekly, if not daily. While these all highlight growing concerns, only a few of these reports have lasting, profound and meaningful global impact on the way that governments, businesses and investors think about the challenges of building a sustainable future.
The International Energy Agency’s Net Zero 2050 Roadmap is one such report.
The IEA’s governing body is composed of energy ministers from each of its 30 Member countries, and is one of the world’s most influential sources of energy analysis. As the climate crisis has become more urgent, many have called upon the agency to develop a scenario aligned with limiting global temperature rise to 1.5 degrees and integrate it into its annual World Energy Outlook (WEO). Instead, the IEA has, until this year, routinely dismissed a 1.5°C-aligned energy transformation as “very difficult and very expensive.”
Prior to the Net Zero 2050 report, none of the scenarios used by the IEA in projecting long-term energy demands were aligned with keeping global warming within 1.5 degrees. This is particularly important for investors because those scenarios became standard reference points for companies and governments when mapping out their low-carbon pathways or rationalizing slow progress. IEA’s new public shift to Net Zero principles indicates a potential sea change.
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The report highlights some key and important facts, including:
- The decline in fossil fuel combustion necessary to achieve net zero emissions by 2050 means that “no exploration for new resources is required and, other than fields already approved for development, no new oil fields are necessary;”
- ‘Peak oil’ has already occurred in 2019, while natural gas demand is expected to peak around 2030;
- Oil falling to $35/barrel by 2030 and $25/barrel by 2050 (for reference, the price of oil was $91 a barrel in 2010 and $37 in 2020 as a result of Covid-19);
- Nearly 100% of cars sold by 2035 will need to be electric or zero-emission vehicles;
- No new passenger Internal Combustion Engine (ICE) car sales globally;
- The share of renewables in total electricity output will be 60% by 2030 and 90% by 2050;
- To meet the growing demand for renewables, the total market size of critical minerals like copper, cobalt, manganese and various rare earth metals is expected to grow almost sevenfold between 2020 and 2030.
For Canadian investors and financial institutions, the implications of the IEA’s net zero projections are significant.
When it comes to fossil fuel financing, Canadian financial institutions have come to occupy a larger and larger share of Canada’s energy sector investments and risks as foreign lenders and investors have shied away. As the world shifts away from high-carbon fossil fuels (including those found in Canada’s oil sands), Canada’s natural resource sectors will require a managed decline in production to ensure that as sectors decrease their emissions, Canadian workers and communities are not left behind.
For banks and insurance companies who rely heavily on IEA’s modelling for lending and underwriting decisions, that means that fossil fuel exploration and expansion projects beyond those that have already been sanctioned can no longer be ‘on the menu’ as the long-term costs of these projects, if accounted for correctly, will far outweigh any short-term gains to be made.
For investors who have been engaging with fossil fuel companies, banks, and governments to put an end to fossil fuel expansion and accelerate the low-carbon transition, they now have a powerful and unlikely ally. While push back from entrenched interests is inevitable, the IEA’s dramatic course correction makes it significantly more difficult for governments, companies, banks, and insurers to justify support for continued expansion of carbon intensive projects, and presents a criticalopportunity to leverage and accelerate the pace of change.
READ: IEA Net Zero by 2050 Report
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