Overcommitted

This Week's Trend In Brief:

• Last week, JPMorgan, State Street, and BlackRock left the Climate Action 100+, a global investor coalition, over its demands that the investment firms push their portfolio companies to rein in climate-damaging emissions.
   

• The defections come as companies across the economy find themselves under increased pressure over their environmental, social, and corporate governance (ESG) commitments from both pro- and anti-ESG elected officials. 
   

• One close observer expressed no surprise at the investment firms’ CA100+ departures, calling the firms’ participation in the coalition “cosmetic” and arguing, “If signing a piece of paper was getting these companies into trouble, it’s no surprise they’re getting the hell out.”
   

• Even as these investors step back, another portion of the financial sector, insurance companies, find themselves facing heightened pressure from activists planning to converge on New York City next week to demand insurers cease underwriting fossil fuel assets worldwide, particularly those related to activists’ latest fossil foe, LNG.
   

• Navigating ESG pressures from both sides of the debate will only get more complicated for public affairs professionals and the companies they represent, requiring a proven playbook to prepare for activism in the streets and the halls of government targeting businesses and investors over ESG and climate commitments.

Digging Deeper:
 

Last week, JPMorgan, State Street, and BlackRock became the latest companies to leave the Climate Action 100+ after the coalition stepped up pressure on investment firm members to demand their portfolio companies do more on climate. Established in 2017, Climate Action 100+ brought together more than 700 investment firms managing $68 trillion in assets to advance global climate goals. These recent departures removed nearly $14 trillion – a fifth of the total assets represented in the coalition. JPMorgan announced that it decided not to renew its membership “after building up its own investment stewardship capabilities,” while State Street “said the new priorities set by CA100+ threatened its ability to act independently.” That latter statement was a reference to what The New York Times reported as CA100+’s shift last year to “phase two of its strategy,” which “called on asset-management firms to begin pressuring companies like Exxon Mobil and Walmart to adopt policies that could entail, for example, using fewer fossil fuels.” As a Blackrock spokesman said, “this new commitment across our assets under management would raise legal considerations, particularly in the U.S.” Columbia Business School professor Shivaram Rajgopal showed no surprise at the investment firms’ departures, and argued, “If signing a piece of paper was getting these companies into trouble, it’s no surprise they’re getting the hell out.”
 
Companies like JPMorgan, State Street, and Blackrock have found themselves increasingly in the crosshairs of both pro- and anti-ESG advocates, who either think they’re going too far or not doing enough when it comes to climate goals. While ESG began as a way for companies to prove their climate bona fides, the investing practice “has become a fiercely debated trend within the financial sector,” with some arguing ESG factors are “crucial considerations” and others contending the factors “are politically motivated and detract from returns.” Today, “When companies wade into ESG waters, they’re soon drowning in displeasure from critics” who accuse them “of politicizing business and investment decisions, or of only paying lip service to the idea.” Indeed, New York City Comptroller Brad Lander responded to the investment firms’ withdrawals from CA100+ by arguing “Climate risk is financial risk” and alleging “BlackRock, JPMorgan, and State Street … are failing in their fiduciary duty and putting trillions of dollars of their clients’ assets at risk.” On the other side, Rep. Jim Jordan (R-OH) celebrated the departures as “big wins for freedom and the American economy,” expressing hope that “more financial institutions follow suit in abandoning collusive ESG actions.”
 
Meanwhile, activists are doubling down on pressuring the financial sector, this time taking aim at insurance companies they want to stop supporting energy companies and projects that purportedly contribute to climate change. Later this month, activist groups will converge in New York City for a protest to demand insurance companies halt insuring energy projects deemed harmful to the environment. While it is not a new phenomenon, these climate groups claim insurance companies must “help secure a safe, livable future for us and future generations” and point out that “Without insurance fossil fuel companies can't operate.” The upcoming protests follow letters sent earlier this month by more than 100 climate groups “to the biggest banks, insurance and private equity firms … demanding an end to funding and insurance underwriting ‘for new and expanding liquified methane gas projects and their parent companies.’”
 
Public affairs professionals and the companies they represent cannot afford to get caught in the crossfire between the twin tides of progressivism and populism that insist simultaneously that they are not doing enough or have gone too far. Aggressive scrutiny of banks, asset managers, and public companies over their ESG commitments will not end anytime soon. Indeed, this increased scrutiny is leading to increased policy action from both sides of the political spectrum, and it is not just financial firms who will be impacted. As the populist and progressive movements continue to shape our political and policy debate, they are both demanding greater accountability from corporations. Public affairs professionals need a playbook as they prepare for actions from all sides targeting business and industry over their ESG and climate commitments.
 

Trends in Energy is your weekly look at key trends affecting the energy industry, brought to you by the competitive intelligence experts at Delve. As the political and regulatory landscape continues to shift, reach out to learn how our insights can help you navigate these challenges.