Green Dollars, Trump Cards

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As the United States withdraws from the Paris Climate deal, a tough time in climate politics heralds new opportunity for green investors.

Even in America where regulators say they will dilute targets set by Obama’s Clean Power Plan, it’s notable that 2017 will be a record year for green resolutions by shareholders.

These contradictory trends belie an emerging shift in the onus of responsibility, from government mechanisms to corporate shareholders. Increasingly, the competitive pressures from clean tech and renewable energy will require companies to devise and implement their own commercially viable climate policy.

For multinationals in particular, investor sentiment is fluid. Just as President Trump’s administration abandons government-led consensus on shared targets for carbon emissions, corporates are becoming more responsive to the concerns of green shareholders.

That is a mighty responsibility for shareholders — and tactically, a tough call.

Consider the past month. On May 23 in Den Haag, Shell’s management resisted a shareholders’ resolution to require detailed measures to reduce carbon emissions. A week later, 62% of shareholders in Exxon-Mobil voted successfully against management to require the world’s biggest oil company to report on climate issues.

The contradiction is everywhere apparent. For the leaders of Big Oil, Paris deal serves a larger – and more commercially useful – purpose than simply curbing emissions. A global compact brings global leverage to foster competitiveness in clean energy.

When President Trump announced his decision to pull the US out of the Paris Agreement, he chose to act on a campaign promise against the advice of CEOs at both Shell and Exxon-Mobil. Secretary of State, Rex Tillerson, a former CEO of Exxon, also cautioned against the damaging effects of withdrawal on the oil industry.

So how can investors fill the gap left by US absence?

The Exxon-Mobil AGM is a first step, albeit modest. Shareholders’ backing for Item 12 requires the company to report publicly from 2018 on the impact of climate change on its business. That favours more open debate, although rivals BP, Shell and Statoil made similar commitments on “climate reporting” in 2015.     

Actual change is harder to influence. Shell’s AGM showed the difficulty of giving practical effect to principled agreements. On May 23, Resolution 21, proposed by the Follow This group of green shareholders, won just 6% support for its proposal to require Shell management to develop and enact plans to achieve the non-binding emissions targets agreed in Paris.

That small proportion of shareholders equity is equivalent to more than $6bn in financial value, and more than double the 2.7% of votes secured in 2016 for a more prescriptive proposal to invest profits from carbon fuels in renewables. Add to that a further 5% of shareholders who abstained. In sum, one shareholder vote in every nine signalled dissent from carbon.

Shareholders, then, are a rising voice against the status quo. Where does the trajectory lead? Watch this video for a fictional – and well-acted – imagining of a Shell AGM when green shareholders win the day.

Fanciful? Yes — if the prime mover in such a scenario were still merely an ecologically responsible concern for climate change. No — when other more commercial motives are come in to play.

First, the unsubsidised unit costs of renewable energy are now close to parity with those of carbon fuels. Second, the net balance of new energy investment since 2015 has tilted in favour of renewables. These are the ingredients of a perfect storm.

For the “green dollars” which aspire to meaningful influence on company strategy and investment, the economics is auspicious. With hindsight, historians of the future will surely content that recent disappointments were an opportunity to bring a green agenda into the financial mainstream.

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