Why might this year's voting season be more intense than ever?

Hello from New York. Before we start today's newsletter, I'd like to mention some big developments regarding the Inflation Control Act, the Biden administration's landmark green legislation. Yesterday, the government announced three organizations that received a total of $14 billion from the National Clean Investment Fund, the first fund of its kind to be awarded under this element of the IRA. More big expenditures could follow as we approach the presidential election in November.

Today, I'm giving you a preview of corporate annual meeting season, where the battle over environmental and social shareholder petitions is expected to heat up. Also today, Lee takes a look at central banks' ongoing indirect support for fossil fuel companies.

Finally, check out our new Right to Reply section, in which we'll highlight some interesting reader responses in the Moral Money mailbag. If you'd like to see your thoughts featured in the newsletter – or simply give us a piece of your opinion – email us at Moralmoneyreply@ft.com. -Patrick Temple-West

The Europe Ethical Money Summit returns to London on 22-23 May. Join us to hear from an exceptional lineup of speakers, including Emmanuel Faber, Lawrence Tobiana, and CFTC Commissioner Christy Goldsmith Romero, among others. As a subscriber to the Moral Money newsletter, you are entitled to a 20% discount on personal passes or you can claim a free digital seat. Open an account now.

Shareholder proposals

The acting season outlook looks tense

The annual ritual between companies and their shareholders, known as proxy season, has taken on new intensity this year.

US oil major Exxon Mobil in January sued two small shareholders to block a climate change petition from being voted on by the company's investors at its annual general meeting. It was a rare lawsuit brought by a company against shareholders, and the case is being closely watched by the rest of corporate America. As of this writing, the case is still being heard by a Texas judge, but the consequences are clear: Shareholder petitions at annual meetings have evolved from a nuisance into a threat worthy of a court battle.

The number of environmental and social shareholder proposals filed at U.S. companies reached a record high in 2023, and the high volume is expected to continue this year, Institutional Shareholder Services said in an April 1 report. As has been the case for the past two years, the SEC is expected to take a hands-off approach to shareholder proposals, the sources said. In 2021, the SEC said it would allow more environmental and social shareholder proposals to be put to a vote, and indications are that the agency will maintain that policy again in 2024, ISS said.

With more leeway from the SEC, environmentalists and human rights activists have become more aggressive in dealing with shareholder proposals. These guidance petitions deviate from the routine disclosure requirements that have received shareholder support in the past. For example, in 2023 investors presented proposals to shareholders of the six largest US banks to phase out new fossil fuel development. The company said that these shareholder proposals eventually prompted Exxon to go to court.

Since shareholder proposals have become more demanding — a trend set to take hold this year — corporate disclosures on environmental or social issues have generally improved, Ben Colton, global head of asset management at State Street, told me.

“We are likely to support shareholder proposals that focus on disclosure,” he said. “We are unlikely to support shareholder proposals of a prescriptive nature that address operational changes.”

The situation is somewhat different in Europe, where shareholder proposals are less common, and regulation has already mandated many of the climate disclosures demanded by environmentalists.

The most popular proposals on both sides of the Atlantic have been “climate expression” proposals, which aim to force companies to submit their energy transition plans for shareholder approval. The campaign was started by billionaire investor Chris Hohn, founder of activist hedge fund TCI, and proposals have been submitted to Shell among others.

“We did not support shareholder proposals requiring companies to take a say on climate,” Colton said, in part because they “could serve as a protection mechanism” to deflect accountability away from the board.

However, there is a continental divide between European and American asset managers in how willing they are to support environmental or social proposals. Large European asset managers tend to support all environmental or social shareholder proposals that win by 40 percent or more, according to Morningstar. US asset managers support only about half of these proposals.

“Our research has found a persistent and growing gap between US and European managers when it comes to support for environmental and social proposals,” Lindsay Stewart, director of investment management research at Morningstar, told me.

For example, Legal & General Investment Management revealed its voting for the first three months of 2024. It voted in favor of four Tyson Foods shareholder proposals, including one calling for more transparency in the company's lobbying on climate issues and another calling for accelerated divestment. Forests. Protection in its supply chain.

With shareholder proposals becoming increasingly contested, this year is likely to see more battles between companies and their investors over climate change and human rights. (Patrick Temple-West)

Central banks

Do central banks help support fossil fuel companies?

In our Monday issue, Zahra Mounir examined steps some central banks are taking to promote clean finance, including a proposal to split interest rates for so-called brown and green investment.

Critics of dual interest rates say central banks should not politicize investment. But the report published yesterday by the non-profit groups Reclaim Finance and Urgewald shows that the current structure of central banks may be far from politically neutral.

The report says the ECB is already playing a role in supporting the fossil fuel economy, through a list of assets that banks can use as credit collateral.

The report analyzed data from 2023 and 2024, and found that the European Central Bank made the assets of 34 fossil fuel companies eligible as collateral. The report notes that ten of the listed companies were active in the coal industry, including Glencore, a leading developer of thermal coal mines.

The European Central Bank is already taking steps to address what critics have called its inherent “carbon bias.” The central bank announced in 2022 that it would review its safeguards policy by the end of 2024, which will reduce the share of eligible assets issued by polluters. But the bank said that “initially” it would only apply those changes to marketable debt issued by non-financial companies.

Reclaim Finance points out that this could be a major loophole. Clarice Murphy, the report's author, said about 40 percent of the fossil fuel assets she identified were issued by financial companies affiliated with fossil fuel companies, putting them outside the scope of the ECB. All of Glencore's eligible assets, as well as those of oil and gas companies Repsol, BP and Shell, were issued by their financial subsidiaries, effectively exempting them from the limit proposed by the European Central Bank.

For its part, the European Central Bank said it lacks data on asset-backed securities and other regulated products issued by financial companies that qualify as collateral. This could limit the central bank's ability to exclude these products – at least as it seeks more disclosure. (Lee Harris)

Right to reply

Last Friday we explored academic Brett Christophers' argument that the renewable energy market isn't working. Reader Patrick Hubert in Paris wrote this response:

Talk of “record profits” by oil majors and “poor fundamental returns” for renewables is a bit short-sighted, but so is the absence of a global price/tax on carbon emissions. It took decades of tax increases and active discouragement of smoking in public places for tobacco consumption to begin to decline in countries where these policies were pursued (late medical evidence and extremely high health costs by +/- half a century): Carbon policies also take decades to take shape period of time, which is not surprising given the lobbying budgets available to fossil fuel producers.

Moreover, this argument seems to have been developed mostly by focusing on utilities and grids, i.e. electrical power generation, which have long relied on fossils. However, approximately one-third of emissions are related to mobility, not energy.

The cyclicality of the fossil fuel sector over longer time periods is well known, and the increasing competitiveness of renewable energy sources is an inevitable reality that oil and gas companies will increasingly have to confront, as distributed storage (both stationary and mobile through interconnected grids) continues. ). Electric vehicles are becoming ubiquitous: As prices fall, more consumers can reduce dependence on the grid and gasoline by switching to renewables and electric vehicles, reducing demand for fossil fuels.

However, Mr Christophers' call for more state involvement is welcome: both as a more patient investor (e.g. infrastructure) but most of all as a regulator, the role of the state is crucial to ensuring the success of the renewable energy market (with storage), It can and will eventually do so.

Smart reading

On a visit to Morocco, Susanna Savage explores whether new practices and technology could transform African agriculture – and the economy of the entire continent.