Proxy Season Part 2: Your Financial Institutions

The 2022 proxy season has an underlying warning for oil and gas executives: Your banks and insurers are now in the climate fray. In Part 1 of our 2022 proxy season debrief, we reviewed the innovative ways climate-activist investors are seeking to drive change. Today, we review how those investors are trying different levers to drive climate action, most notably through financial instruments that are mission-critical to your business.

In the 2022 proxy season, banks and insurance companies were put in the hot seat for their continued funding of fossil fuels. Activists called for more policies around climate-aligned financing and environmental justice. The proposals varied, but their sights were set on the same target: reducing the flow of cash into fossil fuel companies.

Although many of the proposals failed to rally support, our team at Adamantine expects these types of proposals to return in the seasons ahead. We also anticipate that banks and insurers will work to get ahead of this trend, engaging with oil and gas companies to document their climate commitments and plans. As an oil and gas leader, you will want to understand and stay ahead of the pressures on your financing and insurance.

Both of these things are true:

  • Amid geopolitical tensions and inflation factors, some investors appear less willing than they were in the past to support climate-related proposals.
  • Activist investors are now looking to influence the fossil fuel value chain by targeting banks, insurance, and financial-services firms to leverage their influence for climate action.

The situation

In 2021, energy prices and relative geopolitical stability gave investors enough confidence to push companies for more climate action: more GHG reporting and targets, more policy positions in line with the Paris Agreement, and more reporting on climate-related financial risks and opportunities.

2022 saw a marked reduction in support for climate proposals and explicit concerns over proposals becoming too prescriptive. (For an example, see BlackRock’s 2022 commentary.) Nevertheless, activist investors continue to evolve their approach using different levers to influence oil and gas companies.

We went through the proposals targeting major banks and insurance firms and found the following key trends that could affect fossil fuel funding. These should be on your radar:

  1. “Green” financing policies: Several proposals requested that banks and insurance firms adopt policies to ensure that financing does not contribute to new fossil fuel development. A proposal at JPMorgan Chase called on the bank to ensure that its financing “does not contribute to new fossil fuel supply” and “end its investment, underwriting, and lending activities in fossil fuels.”  Similar proposals were filed at Bank of AmericaCitigroupGoldman SachsJPMorgan Chase, and Wells Fargo. For insurance, proposals at TravelersThe Hartford, and Chubb asked the companies to adopt underwriting policies with their net-zero targets. New York and California pension funds were outspoken supporters of such proposals.
  2. Reporting on climate-aligned financing: Multiple proposals called on banks and insurance companies to issue reports addressing if and how they intend to measure, disclose, and reduce GHG emissions associated with underwriting, insuring, and investment activities, in alignment with the goals of the Paris Agreement. Although many of these votes failed to pass, we saw more “off the ballot” commitments (as discussed in Part 1) from companies, such as The Hartford and AIG.
  3. Indigenous Peoples policies: Proposals at banks—Citigroup (Indigenous Peoples) and Wells Fargo (Indigenous Peoplesracial equity audit)—requested reports to shareholders outlining how the companies’ existing and proposed financing activities would affect environmental justice, racial equity, and Indigenous Peoples’ rights. None of the proposals received a passing vote, yet we expect such proposals to return in the 2023 season.

Seize the day

Rather than consider these activist moves, it may be tempting to focus on the anti-ESG trends so visible in the media today, such as boycotts of companies divesting from fossil fuels (as in Texas) and investors making explicit commitments to continue supporting the industry. Both of these things are true.

The important question is not whether banks and insurance firms will continue to finance and insure your company. (They will.) The important question is: How will the actions of activist investors shape their expectations of your company in ways that affect your bottom line? Chubb, for instance, wrote to its shareholders that cutting off energy clients’ access to underwriting and investment would be “unrealistic and inconsistent with an orderly transition to a net zero economy” and that there is “no magic bullet that will create a carbon free economy in the short term.” Yet 72 percent of the company’s investors voted in favor of a proposal requesting a report regarding GHG emissions.

The paradigm is shifting, and investors are using a new playbook. Take heed of these early signals and fold your responses into your risk planning and strategy development. Activist investors will continue to evolve their strategy, and game-changing leaders will learn to anticipate and adapt with agility and resilience. Engage with your institutions to find out what they care about, and partner with them to develop a mutually beneficial strategy.

Our team at Adamantine works with clients to translate proxy results into action plans. Hit reply to set up your consultation with our team. Big thanks to Savannah Bush who co-wrote this Both True.

Here’s to creating our own big levers,

Tisha

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