Catherine Howarth of ShareAction says a synchronised shift away from fossil fuels will be crucial to achieving the Paris climate goals
The movement for responsible investment snowballed through 2018, as investors, policymakers, and citizens all played their parts in shaping a sustainable financial system that supports socially useful enterprise to thrive. We’ve seen bold efforts by investors to support the decarbonisation of our economy and to improve corporate action on the SDGs; and from legislators we’ve seen climate risk being written into investment regulations, driven in part by consumer demand.
2018 will go down as the year many UK banks turned their backs on coal finance. Coal’s diminishing prospects in a world where cleaner and cheaper energy has become readily accessible, has allowed big banks – under intense pressure from civil society – to take ambitious steps to cut the blood supply to new fossil fuel projects the world over.
Having investigated and ranked Europe’s largest banking giants on climate-related performance in 2017, ShareAction went on a tour of European financial capitals in 2018 to speak with banks’ board members and their major shareholders about adopting ambitious climate policies. In 2018, Lloyds and RBS announced an end to financing of new coal projects, and in September, Standard Chartered announced that it would finance no new coal plants anywhere in the world. HSBC had made a similar commitment on the day of its AGM in May with one glaring caveat: for now, HSBC continues to support coal projects in the three climate-vulnerable markets of Indonesia, Bangladesh and Vietnam.
As a result, both Standard Chartered and HSBC are still currently listed in the top 10 largest banks in the world financing the expansion of the global coal plant fleet.
Banks, through their lending activities, are vital to propping up the fossil fuel industry, so this synchronised shift away from coal is exciting and indeed crucial to achieving the Paris climate goals. We now need to see even more banks financing smart green solutions for a low-carbon future.
In 2018 the topic of corporate lobbying to slow down the low-carbon transition gained further welcome attention, not least from a growing number of institutional investors. Important research released this year by Transparency International found that over 70% of UK companies analysed were “poor” about making public the extent and nature of their engagement with politicians and decision-makers. The same opaqueness has been exposed by up-and-coming NGO, InfluenceMap, about high-carbon firms whose lobbyists and trade associations have been all too effective in weakening policy proposals designed to tackle climate change.
We cannot let obstructive lobby groups and their members get in the way of climate action
In October, a group of institutional investors managing $2 trillion threw their weight behind a call for companies to scale back their anti-climate lobbying. Investors like the Church of England’s pension fund, Sweden’s AP7 pension fund, and Legal & General Investment Management wrote to 55 large European energy, mining, and transport companies requesting cessation of lobbying against the goals of the Paris climate agreement in private while pledging support in public. The announcement of this investor-led initiative was a good sign that more investors are taking their stewardship duties seriously. High-carbon companies and their trade associations hold the fate of billions in their hands. We cannot let obstructive lobby groups and their members get in the way of climate action. Investors are uniquely positioned to influence direct and indirect lobbying activities and iron out the climate hypocrisy of the companies they own.
Investor-led requests for corporate transparency are happening across the environmental, social, and governance (ESG) spectrum, with especially welcome efforts on social issues, which grew in importance in 2018. In particular, the media played a key role in helping people make sense of the newly available information on gender pay gaps. But pay was not the only area to face scrutiny from a company’s stakeholders. This year, the investment community turned its attention to broader workforce reporting, for which data are severely lacking but necessary if we are to create safer and more sustainable work for all, aligned with Sustainable Development Goal 8.
This need for reliable and comparable workforce reporting inspired ShareAction to develop the Workforce Disclosure Initiative (WDI). The WDI has swiftly attracted the support of many large mainstream (not just ethical or faith-based) institutional investors. These include Amundi, Legal & General Investment Management, AXA, Schroders, M&G, HSBC and BMO Global Asset Management, which are collectively pushing for better quality data and insights on the management of human capital in companies’ direct operations and supply chains. In recent months, the number of WDI investor signatories has risen to more than 115 institutions with in excess of $13 trillion of assets under management. This represents an evolution in investor stewardship. High quality workforce practices are finally and rightly recognised by investors as a key driver of sustainable business performance and moreover as the right thing to do.
The Corporate Human Rights Benchmark put out its annual ranking of companies last quarter, tracking progress by 100 extractive, agricultural, and apparel companies. One of its more sobering findings was that 40% of the firms assessed were failing on issues like forced labour and the living wage. In 2019, these companies’ shareholders must make the workforce a priority in their dialogue with companies. Civil society will seek to hold investors accountable for the attention they devote to this critical area of corporate malpractice.
The Commission’s heavy focus on environmental labels risks overlooking the human rights impacts of investments
In the spring of 2018, the European Commission launched its Action Plan on Sustainable Finance, with a range of legislative proposals that are now working their way through the European Parliament and Council of Ministers. Progressive and ambitious, the Commission’s proposals put Europe at the forefront globally on sustainable finance and are being closely watched in the US and Asia.
As policymakers recalibrate the investment system to focus on the long term, whilst making investors more transparent and accountable, the Commission’s heavy focus on environmental labels risks overlooking the human rights impacts of investments, including investment opportunities that protect climate stability. Sustainable does not just equal green. In 2018, ShareAction with other NGOs wrote to the Commission to bolster human rights expertise in the implementation of the action plan, and this will doubtless stay in focus through 2019 also.
Closer to home, in a major and highly anticipated breakthrough, the UK government published changes to the regulations that govern how pension trustees consider ESG factors in their investment decisions. Under the new regulations, pension trustees will be required to explain their approach to ESG factors and to the stewardship of investments. DC scheme trustees will also be required to report annually to scheme members on what they have done to implement their policies on these subjects. This meets the demands of over 3,400 pension savers who responded in person to the DWP’s consultation on these proposals – a testimony to the efficacy of people power to change the laws on how retirement savings are managed and invested.
These developments only skim the surface of what the movement for responsible investment has achieved this year. In the year ahead, ShareAction will be pushing major investors further and faster to address the urgency of climate change. We expect to see a pronounced shift from disclosure requests to action requests across the entire ESG spectrum.
Catherine Howarth is chief executive officer of ShareAction, a charity that coordinates civil society activism to promote responsible investment across Europe. @ca_howarth.
fossil fuels ethical investing ShareAction climate change HSBC divestment Standard Chartered Church of England Sustainable finance