TRACEY DAVIES: Funding the future
Making the right decisions now will mean we build back better after Covid
Three weeks ago, 14 climate justice NGOs wrote to more than 30 asset managers with shares in Standard Bank. We pointed out that seven of the bank’s 18 board members have close ties to the fossil fuel industry, notably to Sasol. Two independent nonexecutive directors (including the lead) sit on the board of Sasol; a third was recently appointed executive vice-president of its energy business. Nonexecutive directors also have ties to Exxaro, Ichor Coal, BP Southern Africa and the Phembani Group.
We called on shareholders to vote against the five of these seven directors who are up for election at the bank’s June 26 AGM. We did so on the basis that they are conflicted in crucial matters related to climate change.
Cue the furious backlash. We’ve been accused of attempting to "take over the [bank’s] board", and of "meddling with financial stability". We’ve been called "climate clowns" and "eco-bunnies", and our campaign described as a "power grab by socialists". None of the critics has attempted to address the conflict of interest issue.
These directors are conflicted because Standard Bank has publicly committed to align its strategy with the goals of the Paris Agreement — "to limit the global temperature increase in this century to 2°C above preindustrial levels, while pursuing means to limit the increase to 1.5°C". Achieving this requires financial institutions to plan a managed phase-out of lending to fossil fuel projects.
In a complete about-turn, Standard Bank is now resisting giving shareholders a say on climate risk disclosure
But the bank’s seven fossil fuel-tied directors also sit on the boards or in the executive teams of fossil fuel companies whose business plans are not Paris compliant, and which need financial institutions to provide them with capital. It’s very much not in their interests for banks to phase out lending to the coal, oil and gas industries.
Conflicts can be managed. All these directors should recuse themselves from any board meeting at which matters related to climate change are discussed. But there are worrying indications that these conflicts are not being managed effectively.
These include the fact that Standard Bank provides much information to investors about its lending to renewable energy, but discloses barely any about its involvement in huge new oil and gas projects, such as the controversial East Africa crude oil pipeline and Total’s liquefied natural gas project in Mozambique, which recently secured $15bn in financing.
Furthermore, in a complete about-turn from its position in 2019, the bank is now resisting giving shareholders a say on climate risk disclosure, closely aligning its position with that of Sasol by asserting that shareholders are not entitled to vote on climate change issues.
Investor scrutiny over whether corporate boards have the knowledge and independence to steer public companies through the transition to a low-carbon economy is gaining momentum. The influential shareholder engagement initiative Climate Action 100+ has expanded its focus to board composition as a key element of its climate management demands.
Last month, three New York pension funds called on shareholders in JPMorgan Chase to vote against the re-election of lead independent director Lee Raymond, the former CEO of Exxon Mobil. They argued that, given his history, he cannot fulfil his fiduciary duty as an independent director when it comes to taking urgent climate action. In May JPMorgan said it would appoint a new lead independent director by end-September.
Conflicts of interest should not be conflated with incompetence, but they are a serious corporate governance issue. Standard Bank’s dismissal of them should worry investors. The bank’s board appears to have endorsed a strategy that prioritises major expansion of oil and gas lending across Africa. This is in spite of its own admission that climate change poses a material risk to its business, and contrary to its commitments to climate action through initiatives such as the UN principles for responsible banking.
The head of the International Energy Agency — hardly an activist NGO — warned last week that "the next three years will determine the course of the next 30 years and beyond" for greenhouse gas emissions, and that there is an even shorter window in which to act to prevent a "post-lockdown carbon rebound".
The decisions that governments, investors and financial institutions make right now are crucial to determining what the post-Covid recovery will look like. Will we grab the opportunity to build back better, or will we continue to barrel our way blindly into climate chaos?
- Davies is director of shareholder activist organisation Just Share