Climate risk has arrived as a business issue to be reckoned with.
Big money managers like Vanguard and Blackrock have publicly highlighted the environment as a top investment concern.
It's becoming clear that companies that ignore sustainability concerns will face investor scrutiny.
Climate risk has arrived as a business issue to be reckoned with. Over the last year, the investment community sent a clear message that they are focused on environmental sustainability and expect companies in which they invest to do the same.
Some of the world's largest money managers have made public commitments to the environment, called on companies to improve disclosures related to climate risk, increased allocations to companies with strong sustainability track records, and overruled board resolutions on climate issues. It's now clear that public companies that ignore environmental sustainability will increasingly face investor questions, scrutiny, and possibly direct activism.
Here are ten notable examples of big money managers highlighting the environment as a top investment concern:
New York City announces plan to divest fossil fuel companies from its $189 billion in pension funds (January 10, 2018)
In January 2018, New York City announced a goal to divest its $5 billion holdings in fossil fuel companies from its $189 billion in pension funds within five years. City officials said the divestment would be "among the most significant divestment efforts in the world to date."
New York City Mayor Bill De Blasio said, "New York City is standing up for future generations by becoming the first major US city to divest our pension funds from fossil fuels." The City also announced plans to sue the world's most powerful oil companies over their contribution to global warming. "We're bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits."
Majority of ExxonMobil shareholders vote for greater disclosure of company's climate change risks (December 12, 2017)
In 2017, over 50 of ExxonMobil's institutional shareholders demanded the company produce an annual report on the risks to its business from extreme climate change and government policies seeking to reduce carbon emissions. The resolution, which the company's Board of Directors opposed, was ultimately approved by 62% of shares voted in Exxon's May annual meeting.
The majority shareholder endorsement marked a seminal moment demonstrating that investors will vote against a company's own recommendations related to climate change issues. The shareholder vote also highlighted the increasing value investors put on disclosures of climate risks to the businesses in which they invest their money.
225 investment funds with combined $26 trillion in AUM pledge to pressure companies to curb their greenhouse gas emissions and disclose climate-related financial information (December 12, 2017)
In connection with the December 2017 One Planet Summit in Paris, 225 investment funds with $26 trillion in assets under management pledged to turn up the pressure on companies around environmental and sustainability issues, demanding that companies disclose financial information related to climate change and reduce greenhouse gas emissions. The pledge was notable in its show of partnership across a broad field of investors, political figures such as French President Emmanuel Macron, and transnational organizations such as the United Nations and World Bank.
World's largest equity investor announces proposal to exit oil stocks (November 17, 2017)
Quickly dubbed a "shot heard around the world," Norges Bank Investment Management ("NBIM"), Norway's $1 trillion sovereign wealth fund, announced in November 2017 a proposal to sell $35 billion in oil and natural gas stocks—and completely abandon the sector. As the world's largest equity investor, NBIM sent a shockwave across markets with its announcement.
Coalition of institutional investors managing $1tn+ in AUM demand largest banks take action on climate change (September 14, 2017)
On the heels of a devastating hurricane season, a coalition of investment managers collectively managing over $1 trillion in AUM sent a letter to the CEOs of 60 of the world's largest banks demanding more action on the issue of climate change. Investors sought assurance on plans to comply with the 2015 Paris Accord and more disclosure relating to climate risks.
Vanguard CEO Bill McNabb calls on companies to adopt climate risk disclosure (August 31, 2017)
At the end of last summer, Bill McNabb, CEO of Vanguard, issued an open letter to the directors of public companies worldwide highlighting climate risk as potentially putting value at stake for many companies. The letter encouraged the use of disclosure of "sustainability risks that bear on a company's long-term value creation projects." McNabb put pressure on directors to evaluate potential climate risk and consider it part of their fundamental responsibility to disclose relevant and material risks.
Occidental shareholders override board recommendation and approve climate proposal (May 12, 2017)
At the 2017 Occidental Petroleum's annual meeting, shareholders passed a resolution requiring the company to report on the impact that climate change was having on the business. The vote marked a pivotal moment in the movement to hold companies accountable for the long-term risks associated with climate change, as it was the first time shareholders had overridden a board recommendation on the issue.
The proposal received the backing of Occidental's largest shareholder, $5.4 trillion asset manager BlackRock Inc. "When we do not see progress despite ongoing engagement, or companies are insufficiently responsive to our efforts to protect the long-term economic interests of our clients, we will not hesitate to exercise our right to vote," BlackRock said in a statement.
Activist investor Blue Harbour tells investors it will urge companies to focus on environment and social issues (March 19, 2017)
In March 2017 Blue Harbour CEO Cliff Robbins told investors it will urge companies to focus more attention on environmental and social issues such as climate change, diversity and employee well-being. "This is a way of reducing risk," Mr. Robbins said in an interview with the Wall Street Journal. "If we can add one more lens to look through that helps us determine risk, that's fantastic." Robbins added, "When we call a CEO we are going to be asking about this. We're going to hold you accountable to what we've talked about."
A standard bearer of investing, BlackRock listed climate risk disclosure practices among its top "engagement priorities" for discussions with senior management of the companies in which they invest. The investment manager also gave a nod to recommendations issued by the "industry-led" Financial Stability Board Task Force on Climate-related Financial Disclosures and encouraged companies to consider using the reporting framework. The move was seen as putting new pressure on companies to disclose how climate change could impact their business.
Institutional Investor Services ("ISS") updates 2018 proxy voting guidelines, seeks more transparency around identification, measurement and management of climate risks (January 4, 2018)
Influential proxy advisor ISS updated its 2018 voting guidelines to generally recommend resolutions that seek greater disclosure around how companies identify, measure, and manage climate risk. Moving beyond general risk identification and towards disclosure of how companies are actually managing such climate risks, ISS signaled that it now expects management to be more active on the issue. ISS' stature as a standard setter on governance issues will undoubtedly loom large on the topic of environment sustainability as we enter the 2018 proxy season.