No to net zero: Climate motions in America’s banking space seem doomed to fail
At some of America's biggest banks, shareholders continue a trend of voting against climate-related resolutions this proxy season
The Sierra Club Foundation has a rich history of environmental activism. For over a century, the non-profit has waged battles to protect biodiversity, restrict coal investment and promote clean energy.
The Club thanks its name to the infamous 'Beyond Coal' campaign, one of America’s largest environmental crusades.
This proxy season, the Club has set its sights on America’s financial heavyweight: Goldman Sachs, Wells Fargo, J.P. Morgan Chase and Morgan Stanley. It is far from alone in this. Investors and non-profits have filed similar resolutions this season at financial institutions in Japan and Canada.
However, these resolutions are failing to garner extensive support, exposing a lack of investor consensus on fossil fuel financing.
If shareholder voting in the US follows this pattern, it could indicate a broader issue: stewardship might be failing to push financial institutions towards Paris alignment.
According to Sierra Club’s senior campaign representative Jessye Waxman this trend is worrying.
“Stewardship is central to many investors’ own net-zero commitments, so it’s alarming that investors including the biggest institutional investors like BlackRock and Vanguard continue to choose a hands-off approach to climate risk mitigation”, said Waxman.
Here's the state of play:
Goldman Sachs
On paper, Goldman Sachs seems to have done its homework. In a 2021 climate disclosure report, the firm said it has never denied that climate change is a core challenge: “we were one of the first major banks to acknowledge the scale and urgency of climate change in 2005”, the company stated.
The firm's reported plans to invest in transition industries and finance emission reduction were challenged by Sierra Club at this year's AGM.
“Goldman Sachs is among the world’s largest funders of fossil fuels, providing $119 billion in lending and underwriting to fossil fuel companies during 2016-2021”, Sierra argued.
The path forward, according to Sierra, is for the company to phase out fossil fuel financing.
Perhaps unsurprisingly, the Board recommended voting against the resolution, defending their position by reviving the old divestment vs engagement debate:
“We do not believe that committing to a time-bound phase out of our financing and underwriting activity in hard-to-abate sectors, which critically need both our engagement and our capital is in the best interests of our shareholders”.
Ultimately the proposal was not approved. A mere 7% of shareholders sided with the Sierra Club as the Board’s argument seemed to have more weight.
We do not believe that committing to a time-bound phase out of our financing and underwriting activity in hard-to-abate sectors, which critically need both our engagement and our capital is in the best interests of our shareholders.
Wells Fargo
Meanwhile, at Wells Fargo, Sierra Club adopted a similar argument.
According to its proposed shareholder resolution, Wells Fargo is not aligned with a net zero pathway, despite having a carbon neutrality target of 2050.
Data cited in the supporting statement showed that Wells Fargo is the world’s third largest funder of fossil fuels. Its fossil fuel finance footprint between 2015-2021 is estimated to be around $271 billion.
“Wells Fargo has committed to align its financing with the Paris Agreement, achieving net-zero emissions by 2050, consistent with limiting global warming to 1.5°C. However, Wells Fargo’s policies and practices are not net zero aligned”, Sierra Club wrote in their proposal.
The suggested path forward was, once again, a fossil fuel finance phase out.
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While recommending a vote against the proposal, the company’s board echoed the argument by Goldman Sachs: “We do not believe restricting financing to the oil & gas sector is reasonable given the significant adverse impact that curtailing financing to this sector would have on the U.S. and world economies”.
Again, the proposal was not approved at the bank's AGM on 26 April, detailed voting results are expected to be filed with the regulator shortly.
Wells Fargo has committed to align its financing with the Paris Agreement, achieving net zero emissions by 2050, consistent with limiting global warming to 1.5°C. However, Wells Fargo’s policies and practices are not net zero aligned
Upcoming AGMs
In the abovementioned cases, Sierra Club did not win an audience. At least, not a sizeable one.
However, not all is lost this proxy season. The foundation has two more battles coming up this month.
The first, on 16 May at J.P. Morgan Chase. Again, the proposal finds evidence of non-alignment and the management’s public defence of fossil fuel finance: “CEO Jamie Dimon continues to make public statements calling for new oil leases and gas pipelines”, the proposal reads.
The second, is at the Morgan Stanley AGM on 19 May. Sierra Club’s proposal indicates that the bank has extended $61 billion in financing for new fossil fuel exploration, which, in turn, amounts to misalignment between its stated objective and its observed business practices.
If investors continue voting against proposals such as those put forth by Sierra Club, the significance of these voting patterns is hefty.
Waxman said: “The fact that so many investors voted against asking banks to reconcile their climate pledges with their fossil fuel financing activities suggests that most investors still don’t understand that climate change poses a systemic risk to their entire portfolios and the economy”.
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