Investments | 13 June 2022

ESG moves up energy agenda thanks to investor pressure

Coutts and other investors in some of the world’s largest energy companies are bringing environmental concerns to bear, gearing up the hydrocarbon giants’ transition to net zero 

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The world’s largest oil companies are seeing a continued increase in environmental, social and governance (ESG) concerns from shareholders and investors.

Looking back on the shareholder resolutions raised by UK investors over the 12 months to the end of March, ESG issues now account for 567 resolutions, with support for environmental proposals up by 6 per cent.

Since then, the proxy voting season of 2022 has seen investors exert their voting power to push large oil and gas companies to set more robust targets for achieving net zero by 2050, aligned with the Paris Agreement.

“Ten years ago, these issues were simply not top of the corporate agenda,” said Karen Ermel, Director of Responsible Investing at Coutts. “If we keep seeing this growth, we’d expect more of these resolutions to pass and the interests of shareholders and board members to become more aligned over ESG. We’ll continue to monitor the ongoing 2022 voting season.”

Last year the biggest wins for the ESG agenda were seen at hydrocarbon giants Chevron and ExxonMobil. The resolutions urged ExxonMobil to refresh its board of directors, and Chevron is now pressured to re-evaluate its carbon reduction targets.

 

How has Coutts helped on ESG?

As an investor with an AUM of £30 billion, and as a B Corp committed to profit with purpose for the benefit of environment and society, Coutts is able to promote ESG issues up the corporate agenda in three ways.

An economy experiences ‘stagflation’ when growth is stagnant and inflation is high. It’s an unwanted situation because money is losing value while investments into assets such as shares in companies aren’t making returns because there is such low, or even negative, economic growth.

Stagflation became financially synonymous with the difficulties the UK and other economies faced in the 1970s. The oil producing organisation OPEC embargoed oil exports to many western nations, pushing up oil and energy prices dramatically. The rise in the cost of living, fuelled in part by wage price spirals, coincided with stagnant economic growth, and unemployment was high while things got more expensive. This resulted in stagflation.

Although we currently have an energy shock, especially in Europe, as a result of the Russian invasion of Ukraine, the main driver of today’s inflation pressures was the pandemic. It led to a large demand for goods when strained and locked-down supply chains couldn’t cope. 

We are able to vote for, or against, climate plans put forward by companies

A recent example is our rejection of commodities giant Glencore’s climate proposals for not going far enough to protect the environment, and for not being close enough to the stated Paris Accord carbon reduction goals.

We are able to support or put forward shareholder resolutions on ESG to be voted on by all shareholders

A recent example of this was our support of the proposal put forward by Boeing to improve their reporting on their progress to net zero to align with the Paris Agreement goal of limiting global warming to 1.5⁰C. This was passed with 91% of shareholder support.

We are able to conduct ongoing engagement with respective companies

This involves conversations with board members, CEOs and sustainability heads to find ways to put shareholder resolutions into actual plans. One recent example of this is our advocacy for absolute carbon reduction targets at large oil companies, rather than simply carbon intensity targets. This is because carbon intensity targets may actually allow carbon production to increase with company growth.

How do these actions impact our world?

Our shareholder engagement has real world applications as our actions, along with those of other investors, have seen almost all the world’s investable energy companies approve shareholder resolutions to set stricter carbon reduction targets.
Likewise, some banks and financial companies are also now divesting from fossil fuel projects and companies as a result of shareholder engagement.

“We’re seeing investors becoming more aware of their voting power and the impact they can have on corporate agendas,” said Karen. “We’re excited that the work Coutts does on behalf of clients and the efforts of our industry peers are having a real effect at the heart of some of the world’s biggest companies.”

She added: “We’ve always been clear that we support carbon transition and so continue to invest in, scrutinise and pressure energy companies. If we invested only in carbon neutral companies, our portfolios would be green but the world wouldn’t be. By continuing our shareholder engagement we can continue to invest in purposeful profit that reduces the world’s carbon footprint.”

Coutts works with EOS at Federated Hermes to tailor our voting and engagement activity on our client portfolios and funds. Find more information on our Responsible Investing page.

An economy experiences ‘stagflation’ when growth is stagnant and inflation is high. It’s an unwanted situation because money is losing value while investments into assets such as shares in companies aren’t making returns because there is such low, or even negative, economic growth.

Stagflation became financially synonymous with the difficulties the UK and other economies faced in the 1970s. The oil producing organisation OPEC embargoed oil exports to many western nations, pushing up oil and energy prices dramatically. The rise in the cost of living, fuelled in part by wage price spirals, coincided with stagnant economic growth, and unemployment was high while things got more expensive. This resulted in stagflation.

Although we currently have an energy shock, especially in Europe, as a result of the Russian invasion of Ukraine, the main driver of today’s inflation pressures was the pandemic. It led to a large demand for goods when strained and locked-down supply chains couldn’t cope. 

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