Corporations Are Starting To Perform On Climate Issues, Investors Say

Now that activist investors have convinced most major corporations to disclose climate-related risks, they have begun to press them for mitigation, and some investors report seeing results.

"We’re beginning to see real signs that we’re entering transition," said Adam Matthews, the director of ethics and engagement for the Church of England Pension Board and co-chair of the Transition Pathway Initiative.

"I think it’s something you’ve got to be careful about calling, but at the same time I think that there are signs out there that the engagement is beginning to show impacts. You’re seeing companies that are moving totally out of coal, you’re seeing other companies saying they intend to make no further investments in this, you’re seeing the likes of Shell and Total breaking ranks with their sector and taking certain ambitions to reduce all of their emissions."

Matthews has noticed the change just in the last six or seven months, he said in a webinar Tuesday hosted by Climate Action, and so has Catherine Howarth of ShareAction UK, a charity that promotes responsible investment.

"It started very much as disclosures," Howarth said. "We as shareholders want stronger disclosures from you as a company about how you're considering, for example, climate-related risk. And we're moving now to resolutions that are a bit more directive and based on investors really claiming a sense of agency over handling how they manage climate risk in their portfolios."

Howarth cited recent successes with Rio Tinto, a mining company that faced a shareholder revolt over its participation in coal lobbying efforts in Australia, and Royal Dutch Shell, where shareholders pressed the company to establish, publish and meet emissions targets that align the company with the goals of the Paris Agreement.

"We really need to be comfortable that you've understood the climate risk," Howarth said, characterizing the message delivered by shareholders, "which is a risk for our entire portfolio, not just for you as an individual stock, and we need to see action now."

Activist investors have had more success in Europe, where stewardship has become a corporate norm, than in the United States, Howarth said. But U.S. companies, too, have responded to investor demands for climate-risk disclosure.

In a shareholder action it directed at Tesla Motors for failing to disclose its climate impact, Trillium Asset Management argued that everyone else is doing it:

"Corporate sustainability reporting is now a mainstream business practice, undertaken by 82% of the S&P 500 in 2016, according to the Governance and Accountability Institute. Globally, 73% of 4,500 companies surveyed in 2015 by KPMG publish corporate responsibility reports.”

Corporations adopted these behaviors because of investors, Howarth said, who engage with environmental, social and governance issues as part of their fiduciary responsibility.

“This is now part of what good investment looks like, and that’s a very positive thing because companies need engaged and active owners if they’re going to achieve their long-term objectives. It’s all part of kind of getting the right kind of capitalism.”