US banks continue to finance fossil fuels – Tearsheet

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Shareholders begin to pressure banks to stop fossil fuel financing

Last week, shareholders of some of America’s biggest banks voted on climate resolutions proposing to halt investment in new fossil fuel projects by the end of the year.

The result was not as green as net zero enthusiasts had hoped – none of the proposals were approved by votes from shareholders at Bank of America, Citigroup or Wells Fargo.

Bank management has fought these resolutions, urging shareholders to vote against them in public proxy circulars. Citi even asked the SEC to exclude the proposals, arguing that they sought to “micromanage the business” – the SEC refused to do so.

“Our Board of Directors believes that the policy change requested by the proposal is unnecessary and would limit our company’s ability to implement our climate strategy, which we believe provides the most effective path for our company. to fight climate change,” Bank of America said in its proxy. statement.

The current instability in energy markets also likely played a role, making investment managers more cautious about shaking things up in the current geopolitical situation.

Either way, this outcome is likely to ripple throughout the financial sector as shareholder resolutions are closely watched to gauge the real value of taking bold climate action.

At Citi, the proposal noted that the bank had no commitments to stop fossil fuel expansion and had in fact recently financed Russia’s largest coal producer and operator, JSC SUEK, as well as other banks, including some in Germany.

The request was that Citi adopt a policy by the end of 2022 “committing to take proactive steps to ensure that corporate loans and subscriptions do not contribute to new fossil fuel supplies.”

In response, CEO Jane Fraser said it is “not possible for the global economy, human health or livelihoods to shut down the fossil fuel economy overnight.”

While the dynamics are indeed complex, no one was actually asking to unplug the fossil fuel industry overnight – that would be irresponsible, and frankly, impossible. But it seems that demanding a new path by setting an intention to stop funding new projects is not currently feasible for finance executives either.

Citi told the SEC that fossil fuel companies have committed — or should commit to — to planning and meeting targets to adapt their business model, and that they need support in those efforts. However, the oil companies are also expected to come under pressure from investors at their respective upcoming shareholder meetings. For the first time ever, leading proxy advisory firm Institutional Shareholder Services disagreed with claims by big oil companies that they have Paris-aligned goals and asked investors to vote on proposals that would conform to the agreement.

But there is a silver lining here, albeit quite thin in increasingly cloudy skies.

About 11% to 13% of shareholders voted for the three banks’ proposals, representing more than $65 billion investment capital. This is not a bad number given that these were early resolutions asking for dramatic changes. In addition, any resolution that obtains more than 5% can be submitted again the following year.

Kate Monahan, director of shareholder advocacy at Trillium Asset Management, who pitched the proposal to Bank of America, hopes next year that number will be even higher.

“New proposals often take time to gain traction, and an 11% vote gives us a solid foundation to build on for next year. We have been encouraged by the support the proposal has received from major investors like the New York State Pension Fund, and encourage other investors to consider the serious risks posed by continuing to fund fossil fuel expansion,” she said in an interview.

Chart of the week

Global green bond issuance volume fell nearly 35% year-on-year to $83.8 billion in the first quarter of 2022, marking the second consecutive quarter of declines, according to the Climate Bonds Initiative.

As central banks around the world battle inflation and rising interest rates, the costs of issuing green bonds are also rising, making them less attractive to investors. Additionally, Russia’s invasion of Ukraine has created additional uncertainty and affected funding for energy transition projects.

The largest issuer by region was Europe, accounting for more than half of the debt sold in the quarter. But at the country level, China tops the charts with $21.4 billion in green debt sold, followed by Germany with $16 billion and France with $7.6 billion. The United States came in fourth with $4.2 billion.

quote of the week

“It sounds crazy but if you go back to when we launched the ‘Road to Glasgow’, which would have been February 2020, and if you look at the language we used there, it was educational for 90% of people in the room. It was about the transition to net zero and how we need to build a system for that, how we need to integrate it and make all the decisions to consider the climate. And so now the dialogue, thankfully, is much more specific.

Marc Carneyformer Governor of the Bank of England and United Nations Special Envoy for Climate Action and Finance

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What we read

Bank shareholder proposals to curb new fossil fuel lending receive weak support (Reuters)

68% of US executives admit their companies are guilty of greenwashing (Fast Company)

Fund managers making false ESG ‘commitment’ given formal notice (Bloomberg)

Mastercard links all employees’ compensation to ESG objectives (ESG Today)

Former BlackRock head of sustainable investing launches new advocacy platform (Sustainable Views)

The majority of ESG funds are not sustainable. Here’s why. (Kiplinger)

Companies have used carbon credits created in oil extraction projects (FT)

Michael J. Birnbaum