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16th January 2020

The growing impact of climate change on attitudes to investment and corporate conduct

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Pressure is growing for climate change action to be taken by businesses in all sectors of the economy. Last week over 100 Barclays investors filed the first ever climate-related shareholder resolution at a European bank. The resolution is due to be voted on at Barclays’ AGM in May 2020, and there have been calls for the company’s board to recommend a vote in favour. The resolution calls on Barclays to publish a plan to phase out the provision of financial services to companies in the energy sector, as well as gas and electric utilities that are not aligned with the Paris climate accord. Barclays is instructed to set targets for this phase-out and to report on progress on an annual basis, from 2021 onwards.

The filing of the resolution was co-ordinated by ShareAction, a charity that promotes responsible investment, and has been supported by 11 institutional investors including Brunel Pension Partnership, LGPS Central, Sarasin & Partners and Folksam Investors.

The development is yet another sign of the increasing spread of pressure for climate change action into different business sectors, beyond just traditional oil and gas groups. Other European lenders have already made moves to align their energy financing more closely with the Paris climate goals, with various commitments coming from banks including HSBC, Standard Chartered, Credit Agricole and BNP Paribas.

Around the same time, Mark Carney, the outgoing Governor of the Bank of England and soon to be the United Nations Special Envoy for Climate Action and Finance, warned in an interview with Radio 4’s Today programme, guest-edited by climate campaigner Greta Thunberg, that companies and investors needed to increase the pace of their planning for climate change and the related reporting. He said that “What we can’t have is a financial sector that ignores the issue and all of a sudden it has to deal with it,” and warned against the risk of assets becoming “worthless”.

In mid-December, the Bank of England consulted on its proposals to stress test the resilience of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk.

A report published in 2019 by Octopus Renewables, on green investment trends, noted that increasing numbers of underlying investors see Environmental, Social & Governance (ESG) considerations as a key element of how they would like their money to be invested, with institutional investors highlighting its growing importance as the number of “greener” millennial investors continues to rise.

The impact of climate change awareness among young people can also be seen in the pledge by half the UK’s universities to at least partially divest their shares in fossil fuel companies after a sustained campaign of protests by students.

Another recent example of climate change pressure on companies is the series of protests targeting Siemens of Germany since it signed a contract to build rail signalling systems at the proposed A$ 2 billion Carmichael coal mine in Galilee Basin, Queensland. Joe Kaeser, the Siemens chief executive, has responded that there is no legally and economically responsible way for it to renege on the contract, but the pressure on the company has been significant.

Finally, BlackRock has just announced sweeping changes to its business, in a major move towards sustainable investing. In his annual letter to chief executives, Larry Fink wrote that climate change has become a defining factor for companies’ long-term prospects, and that BlackRock believes that with the impact of sustainability on investment returns increasing, sustainable investing is the strongest foundation for client portfolios going forward. BlackRock has announced a number of initiatives to place sustainability at the centre of its investment approach and the letter to CEOs included the view that “Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing scepticism from the markets, and in turn, a higher cost of capital.”

Companies and investors are going to need to display ever greater levels of climate change awareness and action if they are to prosper as we increasingly transition to a new energy landscape. The momentum and reach of climate change awareness, and the pressure to adapt behaviour accordingly, will no doubt continue to grow, and to impact a wider range of businesses and sectors over time.”