Asset owners must ‘vote with their feet’ on managers not backing net zero

A lack of alignment between voting policies of asset owners and managers means net zero pension funds must “vote with their feet” on the issue, according to Laura Hillis, director for Climate and Environment at the Church of England (CofE) Pension Board.

“We need to engage with managers about this issue. Fundamentally, you vote with your feet. Once that starts to happen on a big scale, that will start to hold asset managers more accountable”, she said.

Hillis also spoke of an “escalation framework” that needs to be taken with asset managers whereby leaving is the final option. 

She spoke at a panel discussion held at the Oxford Sustainable Finance Summit on the role future of stewardship following the Exxon / Engine No.1 engagement two years ago. 

In 2021, the activist investment firm Engine No. 1 successfully pushed to get environmentalists on the Exxon board. While participants considered this to be a success, they also addressed the headwinds facing stewardship on climate change. 

Her comments come as major oil and gas firms have backtracked on their carbon targets this year. A report published last week revealed that most UK asset managers had withdrawn their climate demands from oil and gas firms. 

Lindsey Stewart, director of investment stewardship research at Morningstar, was downbeat about room for further progress at ExxonMobil: “Why are we convinced the oil companies can transition without being forced to do so by the government? Looking at Exxon’s latest presentations, there is call for increasing output and reducing emissions as if you can really do both at the same time. That's two years after the engagement by Engine No. 1.

“These companies are run by oil guys who have been in the industry for 25-30 years. Why are we sure that oil companies are capable of operating any other way?”

In this year's first quarter earnings call from ExxonMobil, the oil and gas major pointed to new oil and gas projects to “meet global need”, including the developments of oil and gas fields off the coast of Guyana, and a 50% increase in processing capacity at oil and gas handling facility the Cowboy Central Delivery Point in New Mexico.

The success and failure of responsible investment

Hillis also spoke of the Climate Action 100+ (CA 100+), where the CofE Pensions Board has been heavily involved, acting as lead engager with Shell. Following the oil firm's  AGM, the Church of England announced its decision to divest from Shell and any other oil and gas holdings.

CA100+ is an investor initiative that looks to ensure the world’s largest corporate greenhouse gas emitters take action on climate change. In the most recent progress report, it showed that 91% of focus companies have aligned with TCFD recommendations, up from 72% in March 2021, and 75% of focus companies now have net zero commitments, up from 50% over the same time period.

But Hillis also acknowledged the setbacks the organisation has faced, with key oil and gas majors either walking back on emissions reductions targets made in the case of Shell or BP, or never making them at all in the case of Saudi Aramco. “Clearly as a responsible investment industry we haven't succeeded yet, that is the simple answer.

“I do believe there has been an extraordinary amount of progress on companies. They weren't doing much at the beginning of that initiative, and while all the progress for these companies can’t be attributed to the CA100+, I do think many of those companies have come a really long way.”

Hillis also spoke of needing to “get smart” with the limited resources in the stewardship space and looking instead to engage with high emitting firms further down the chain than the oil and gas majors themselves, echoing comments made by Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, last month.