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Climate Group With $32 Trillion Pushes Companies for Transparency

Climate Group With $32 Trillion Pushes Companies for Transparency

(Bloomberg Businessweek) -- A group of Royal Dutch Shell Plc executives sat in a conference room in the company’s Hague headquarters in November. On the other side of the table were representatives for two small shareholders: the pensions board of the Church of England and Dutch fund manager Robeco Institutional Asset Management BV. The leaders of Europe’s largest energy company realized that after months of argument, they’d lost.

The investors wanted Shell to make an abrupt reversal on climate change. Only six months earlier, Chief Executive Officer Ben van Beurden had declared the company wouldn’t set short-term targets on cutting carbon emissions, claiming they’d be little more than fodder for lawsuits. But unless the company changed course, it faced a public war with these shareholders. And while these two investors owned a small fraction of Shell’s shares, they were backed by allies in Climate Action 100+, a coalition of some of the world’s largest investors, who together manage $32 trillion in assets.

In December, citing work with the little-known group, Shell announced near-term climate targets. A common theme was splattered across the headlines around the announcement: Shell had caved.

Two months later, BP Plc said it had agreed to a shareholder resolution filed by Climate Action 100+ members and would release specific details about how its investments aligned with the Paris climate accord. Less than a month after that, Glencore Plc, a notoriously hard-nosed miner and trading house that’s one of the world’s largest suppliers of coal, said it would cap output of the fossil fuel because of global warming. It had also been paid a visit by Climate Action 100+.

This group of shareholders has become the biggest, richest, and possibly the most benevolent bully the corporate world has ever seen. What Climate Action 100+, or CA100+, wants is simple to understand and agonizing to achieve. It believes companies should detail exactly how climate change will affect their business, so shareholders can pull money from those that aren’t preparing for the future. (It asks companies to follow recommendations of the Task Force on Climate-related Financial Disclosures, which is chaired by Michael Bloomberg, the majority owner of Bloomberg LP, publisher of Bloomberg Businessweek.) It also wants companies to align capital spending decisions with efforts to limit global warming to less than 2C (3.6F). And it wants them to stop funding groups that lobby against those goals.

This idea is far from new, and dozens of groups—from the divestment movement to protesters climbing atop offshore oil rigs—have tried. The difference is that CA100+ isn’t out to slay corporate climate villains; it wants to help them succeed, albeit on different terms. The movement is working, and it’s growing. And it’s coming for everyone.

Climate Group With $32 Trillion Pushes Companies for Transparency

The first indications that something big was forming were in late 2015 in Paris. Anne Simpson, director of board governance and strategy in the investment office of the California Public Employees’ Retirement System, which manages the pensions of state workers, was headed there in preparation for the 21st United Nations climate summit. The French ambassador to the UN helped her invite about 20 of the largest institutional investors at the conference to a series of breakfasts, where together they started to formulate a plan.

The way fund managers were engaging with companies on climate change at the time was largely ad hoc. There were dozens of groups with overlapping missions. There was no unifying list of who should be targeted and what people should ask. “What we saw was the potential to focus on a relatively small number of companies, and if we could partner with others, we actually could do something quite serious to move these companies along,” Simpson says.

Borrowing an idea from the financial crisis, the investor group found 100 companies they considered “systemically important emitters”—the too-big-to-fail institutions of the climate crisis. The largest of those was Warren Buffett’s conglomerate Berkshire Hathaway Inc.; the smallest was German elevator maker Thyssenkrupp AG. In December 2017, at the One Planet Summit in France, Climate Action 100+ made its first official appearance.

According to a person close to the Shell negotiations, who asked not to be identified because the discussions were private, when CA100+ showed up, executives were truly worried about a rift with the company’s largest investors. While CA100+ members mostly consider divestment a last resort, the threat looms large. For example, Legal & General Investment Management, one of Shell’s largest shareholders, dumped some of its holdings in Russian oil producer Rosneft PJSC and the U.S.’s Occidental Petroleum Corp. in June after the companies failed to engage with L&G on climate change.

Shell Chairman Chad Holliday is especially sensitive. He still bears the scars from environmental battles fought during his 39 years at DuPont, where he rose to CEO and chairman before leaving in 2009. In the 1970s the chemical manufacturer faced accusations that its products put a hole in the ozone layer and later became a major target of Greenpeace. In private, Holliday agreed with Shell CEO Van Beurden that the oil company needed to show it was on the right side of the climate issue.

When Shell announced its short-term goals, investor pressure immediately eased, while media reaction was so positive that employees of its Big Oil rivals made sniping comments about Shell to reporters. Behind the scenes, CA100+ members even asked an activist group called Follow This to stop embarrassing Shell with its climate-based shareholder resolutions. It did.

Shell will try to meet its climate targets partly by selling more natural gas: It burns less carbon than oil and generates more profit for the company. Representatives of CA100+ say they’re fine with any rationale companies use to make pledges. The group’s goal is to cut the financial risk associated with environmental catastrophe. The structure of the organization itself is loose, and progress is monitored mostly by two investors appointed to each company. The group includes 323 investors, and more are expected to join. CA100+ has had some setbacks: One big target, Exxon Mobil Corp., successfully persuaded the U.S. Securities and Exchange Commission to block a resolution filed by members of the group. That was even after a member of the CA100+ steering committee helped put together a letter, signed by 114 investors managing $9.5 trillion, asking the SEC to reject Exxon’s request.

Mark Lewis, head of sustainability research at BNP Paribas Asset Management, says the CA100+ logic means it may actually push a CEO to stop pursuing growth. Some companies, such as those specializing in carbon-heavy industries, are unlikely to successfully transition into a cleaner line of business and so will need to shrink over time, Lewis says. “You’ve never had a mobilization of investors on this scale before,” says Adam Matthews, who leads engagement for the Church of England pensions board. “For these companies, there’s no more hiding.” 

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

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