Why investors may move the hand of industry on climate action

In EY’s 2018 Investor Survey, 48% of investors surveyed said they would rule out an investment immediately if it was linked to risk from climate change, and incredible jump from 7% in the prior year’s survey! With climate change and its impacts being recognised as one of the biggest risks to business in the world by the World Economic Forum, investors are increasingly demanding more from the companies they invest in to demonstrate the tangible ways in which resilience is being embedded across their investments.

In 2019, Larry Fink, the CEO and Chairman of the world’s largest asset manager BlackRock Investments said in his 2019 Letter to CEOs: “As wealth shifts and investing preferences changes, environmental, social and governance issues will be increasingly material to corporate valuations. This is one of the reasons why BlackRock devotes considerable resources to improving the data and analytics for measuring these factors, integrates them across our entire investment platform, and engages with the companies in which we invest on behalf of our client to better understand your approach to them”. Similarly, in 2018 AMP Capital published a thinkpiece titled ‘How climate change is creating risks and opportunities for investors’, which noted: “Professional investors are increasingly focusing on both the impact their investment choices have on climate change, and also on how their investments will be impacted by it. This reflects a wider understanding of, and concern for, the impact of climate change, not just on the environment, but also on the sustainability of company earnings.”

Investor action includes proactive engagement with companies, including direct shareholder action. In May 2019, investors filed a climate change shareholder resolution with BP calling for the company to set out a business strategy consistency with the goals of the Paris Agreement. This was passed with 99.14% of support from shareholders, and also had the support of the BP Board. BP’s CEO, Bob Dudley, said just last week “We are certain we’ve got a path, it may not be linear, to being consistent with Paris goals,”. It’s making them re-think investments, and even exit the most carbon-intensive projects (though they’re yet to announce which). In Australia, shareholder actions are being raised by shareholder activist groups such as Market Forces and Australian Centre for Corporate Responsibility (ACCR) around a wide range of climate related issues including climate risk disclosure, advocacy of lobby groups on climate policy, and exposure to fossil fuels in investment portfolios.