The world’s biggest investors are coming under intense pressure over the role they play in climate change, as the focus on tackling global warming moves beyond oil, gas and mining to the companies that finance fossil fuel producers.
A coalition of shareholders — including nuns, public pension funds and asset managers — are targeting BlackRock, Vanguard, JPMorgan and T Rowe Price, four of the world’s biggest fund houses, over their record on climate change votes.
Shareholders have filed resolutions at the four asset managers ahead of the 2020 annual meeting season, calling for the fund houses to review their voting policies on climate change issues.
At the same time, pension fund clients are becoming increasingly vocal about the need for asset managers to step up on climate change, including Japan’s $1.6tn Government Pension Investment Fund, the world’s largest pension fund.
Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, a body whose 170 members have more than €23tn in assets, said: “2020 looks set to be the year in which it becomes untenable for investors to sidestep their responsibilities on the climate crisis.”
She added it was “critical that investors use their influence to push companies to align their business models with the Paris Agreement”, which aimed to keep global temperature rise this century well below 2C above pre-industrial levels.
The growing focus on climate change comes after activists such as Greta Thunberg have warned about the risks of global warming and wildfires rage in Australia, killing at least two dozen people and forcing tens of thousands to evacuate their homes. Scientists believe the scale of the wildfires is an example of how climate change can intensify natural disasters.
There are also warnings that asset managers failing to act on climate change put their clients’ assets at risk, including from outgoing Bank of England governor Mark Carney, who said some assets would become worthless.
Asset managers are split on how they approach climate change. While many work together to push for action on global warming, BlackRock, Vanguard, JPMorgan and T Rowe Price were all notably absent from a letter signed by 631 big investors in December that urged governments to tackle the global climate crisis.
Asset managers are also taking different approaches to voting at the annual meetings of the companies they invest in. According to data from Ceres, a non-profit, asset managers such as Pimco supported climate change resolutions in 2019 at least 95 per cent of the time. But this dropped to just 4 per cent of the time for JPMorgan Asset Management.
BlackRock and Vanguard consistently vote against climate resolutions, which typically ask for more information on how a company would be affected by global warming or call on businesses to outline their plans for transitioning to a low-carbon economy.
According to Majority Action, a non-profit, BlackRock supported just five of 41 such resolutions it examined in 2019, while Vanguard backed just four. At least 16 of those resolutions would have received majority support if BlackRock and Vanguard had voted in favour.
Timothy Smith, director of environmental, social and governance shareholder engagement at Boston Trust Walden, a US asset manager that is involved in filing climate-related resolutions at asset managers, said BlackRock and Vanguard’s voting records were disappointing. “They are at the bottom of the barrel.”
Natasha Landell-Mills, head of stewardship at Sarasin & Partners, a UK-based asset manager and a BlackRock shareholder, said many big asset managers had been too reluctant to use their vote on climate change issues. “Scrutiny of that is rising. I would find that hard to understand if that [reluctance to vote against] continues,” she said.
While most asset managers say they use private meetings with companies as a tool to push businesses to step up on global warming, critics say it is not enough.
Jeanne Martin, campaign manager at ShareAction, a charity, said: “Engagement can be a powerful tool. But the problem is that if the only way you are willing to engage is privately and you are not willing to escalate it [into a vote against the company or a director], then it can be a problem.”
Eli Kasargod-Staub, executive director of Majority Action, said it was vital that the most influential investors step up on climate change, adding that the largest three asset managers controlled about a quarter of the voting power across big US companies.
“This gives them outsized influence over what is happening in boardrooms and outsized influence over corporate policy,” he said.
He added that if big asset managers took a tougher stance, including through their voting at annual meetings, “you would see rapid changes on climate change” at a corporate level.
BlackRock said it was concerned about climate risk and its impact on shareholder value. “We believe evidence of the impact of climate risk on investment portfolios is building rapidly and we are accelerating our engagement with companies on this critical issue.”
The $7tn asset manager this month joined Climate Action 100+, an influential investor group that is urging the heaviest emitters of greenhouse gases to reduce their impact on the environment.
T Rowe Price said it believed its proxy voting practices take account of climate change. “Assessing a broad range of investment concerns — including climate change — is integral to our investment process,” the company said.
It has asked the Securities and Exchange Commission, the US regulator, to omit the shareholder proposal from the upcoming annual meeting.
JPMorgan Asset Management said voting at corporate meetings was just a “component of our stewardship”, adding: “We’re always seeking to proactively engage with companies to ensure we’re working towards creating long-term value for our clients.”
Vanguard said it was “concerned about the impact of climate change risk”, but said that voting was just one part of the corporate governance process.
“Vanguard is pursuing an active engagement strategy that focuses on boards’ climate governance and oversight of climate risk or climate strategies, and on comparable and investor-relevant disclosures,” it added.
As 2020 kicks off, several clients and shareholders of big asset managers say they will put increased pressure on fund houses to ensure climate change is front and centre in climate decisions.
Those that fail to respond will suffer further negative attention. Some fund houses have already been publicly shamed for their alleged lack of action on climate change by peers: in December, activist investor Christopher Hohn accused BlackRock of “greenwash”.
Mr Kasargod-Staub said policymakers and the public were starting to wake-up to the role asset managers can play in helping stop global warming. “It is really driving scrutiny of big asset managers.”