Climate and the changing corporate environment
In a first for SA, Standard Bank tabled climate change-related resolutions at its AGM last week. As environmental concerns grow, such events are likely to become more common
It’s a rare but delicious occasion when an AGM is anything to write home about. When it is, it’s often not good news for the company in question. But that wasn’t the case last week, when Standard Bank shareholders voted on the first-ever climate change-related resolution to be tabled at an AGM in SA.
Though the resolution failed to pass, it received substantial support (38%) and followed such robust debate that one banking executive in the back seats declared it the most exciting AGM he’d ever attended.
The resolution was tabled by the Raith Foundation and shareholder activist Theo Botha, with the support of Just Share, a responsible-investing nonprofit organisation. If passed, it would have required the bank to prepare a report on its exposure to climate risk in its business activities.
The bank’s board recommended the resolution be voted down on the basis that it would be impractical to implement.
One ordinary shareholder also argued that the resolution should be rejected, as the bank should not be bullied by interest groups to comply with their dogmatic approaches to certain issues. "The next issue is going to be why should this bank lend to producers of cattle because they produce flatulating cows, or any other source of greenhouse gas."
However, Raith Foundation trustee Kathleen Satchwell says shareholders are entitled to know the financial risks to which the bank is exposed.
These could include reduced revenues from decreased use of fossil fuels, the closure of mines and gas fields, and declining development of coal-powered stations. "[These] might possibly result in defaults to this bank," she says.
The activists’ second resolution, passed with 55% of the vote, was that the bank adopt and disclose, in detail, a policy on funding coal-fired power plants, as well as coal mining. This is another first for an SA bank.
Just Share executive director Tracey Davies says she didn’t expect the main climate change-related resolution to pass, but believes 38% support for it is extraordinary.
"Traditionally, around the world, when these resolutions are first tabled they get 2% or 5% [support]," she says. "This shows there is a significant chunk of institutional investors, asset managers, who may not be very vocal on these issues but are clearly doing the right thing when it comes down to the wire."
Satchwell says such disclosure is standard practice for a number of banks in the UK, US and New Zealand, including Standard Bank’s original parent company, Standard Chartered. "If banks all over the world are doing [this], I think we are going to find other banks can do it," she says. "And, you know, change happens slowly, but it happens."
But not everyone would seem to agree on the interpretation of the law underlying such resolutions in SA.
Standard Bank chair Thulani Gcabashe says that, on the board’s reading of the Companies Act, the bank was obliged to table the resolution put forward by the Raith Foundation and Botha.
However, the same activists were less successful at putting a climate change-related resolution on the agenda at Sasol’s AGM in November. Upon receiving a legal opinion on the matter, Sasol — one of SA’s largest greenhouse gas emitters — did not allow it to be tabled.
Jon Duncan, head of responsible investment at Old Mutual Investment Group, says the developments suggest environmental, social and governance (ESG) issues will increasingly show up on the corporate agenda.
Duncan believes the industry is starting to realise that large asset owners will need to transition their asset registers and pay greater attention to the carbon intensity of their investment portfolios.
"While it might seem like applying climate risk factors to investment portfolios is time-consuming] and costly, the longer-term costs of not implementing this approach are far higher," he says. "It simply has to be done in terms of long-term portfolio returns."
The introduction of a carbon tax in SA last week will also force markets to contend with climate risk, Duncan says.
The push for corporates to take issues relating to the environment and climate change into account is growing globally, says Piet van der Merwe, ESG analyst at Momentum Investments.
Investment processes for asset managers such as Momentum have changed drastically over the past decade to include such considerations. But up to now the emphasis has been on corporate governance rather than green issues, due to a string of recent corporate failures.
The number of climate change activist organisations is also growing, and they want their messages to reach the public domain, Van der Merwe says. "Buying a share in a listed company and asking questions at shareholder meetings is an excellent way to carry a message into the public domain."
And, he says, considering that many SA companies have overseas listings, they are bound to be watched more intently by international activist organisations — and, with that, the pressure on them will intensify.