ESG developments this week
Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.
In the states
Largest state pension fund announces punitive action against ExxonMobil
The California Public Employees Retirement System (CalPERS), the largest public pension fund in the country, announced on May 21 that it has chosen to take action against ExxonMobil at the company’s May 29 annual shareholder meeting. Because of a lawsuit filed by Exxon against two small shareholders – Arjuna Capital and Follow This – CalPERS decided to vote against all 12 of the company’s directors and its CEO:
For almost four decades, CalPERS has used its investments in major corporations to hold shareholder-elected directors and top officials accountable. We believe this is key to how we ensure long-term, sustainable investment returns for more than 2 million members. We do so, in part, by asking company leaders tough questions and, in some cases, demanding action through our support for various shareholder proposals. We cast thousands of votes every year.
Now, decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation, designed to punish two small groups that dared to speak truth to power. If successful, the legal action could diminish the role—and the rights—of every investor in improving a company’s bottom line.
That’s why on May 29, 2024, CalPERS will cast our shareholder votes in opposition to all 12 members of ExxonMobil’s board of directors and its chief executive officer. We urge other ExxonMobil shareholders to do the same, to send a message that our voices will not be silenced.
Matt Cole, the CEO and CIO of Strive Asset Management and a former portfolio manager at CalPERS, responded with a long post on Twitter raising questions about CalPERS’ action:
Arjuna Capital is an investment firm with three pillars: Divest from Fossil Fuels, Invest in Solutions, and Engage in Corporate Change.
Given their first pillar is to divest from fossil fuels, a natural question with their Exxon shareholder proposal is if Arjuna is a real shareholder of Exxon trying to maximize the long run returns of Exxon. Exxon rightly calls out they are not, noting “Arjuna Capital and Follow This do not own any direct shares” of Exxon. …
CalPERS is a political organization. The majority of the board of directors at CalPERS aren’t elected by the pensioners, but directly appointed by the elected political class of California. So you have a classic case of bad governance at CalPERS with a political board that lacks investment experience pushing their political agenda into CalPERS and perverting the investment interests of public employees.
Red state officials express support for Exxon
Elected officials from 19 Republican states on May 24 responded to CalPERS action against ExxonMobil, writing a letter to asset managers encouraging them not to punish the company and its directors and, instead, to acknowledge their support for legitimate shareholder interests:
Officials from 19 Republican U.S. states urged major money managers on Thursday not to vote against ExxonMobil’s directors at a meeting next week where some shareholders plan to voice their opposition to a lawsuit launched by the oil company against climate activists.
The group, including Florida Chief Financial Officer Jimmy Patronis and Louisiana State Treasurer John Fleming, said in a letter to companies including BlackRock, Goldman Sachs and JPMorgan that Exxon’s board “deserve our thanks and support… for seeking to rein in activist shareholders”.
Exxon’s pursuit of the case against Arjuna Capital and Follow This over a proposal the company push for stricter climate targets, even after the investor groups withdrew it, has split opinion among shareholders and state officials.
In Washington, D.C.
Federal judge certifies class for ESG suit against American Airlines
A federal judge in Texas on May 22 certified the plaintiffs in a suit against American Airlines as a class for litigation. The suit centers on the investment of airline pension funds in ESG products:
A pilot suing American Airlines Inc. over its 401(k) plan’s alleged ties to investments focused on environmental, social, and corporate governance goals won a court order certifying the case as a class action covering as many as 100,000 people.
American argued that the case’s legal theory—that the airline wrongly offered funds managed companies that pursue ESG policy goals through proxy voting and shareholder activism—couldn’t be resolved on a class-wide basis because it requires a “proxy vote-by-proxy vote analysis.” Judge Reed O’Connor disagreed in an order issued Wednesday, saying the class members’ alleged injuries “flow from a common set of facts” and their potential damages can be calculated on a class-wide basis….
The lawsuit by American pilot Bryan Spence says the airline’s $26 billion 401(k) plan improperly favored ESG funds and invested billions with BlackRock Inc., which he describes as a proponent of the investment strategy. It’s one of the first private-sector lawsuits to argue that a retirement plan fiduciary breached its duties by pursuing ESG investments—those aimed at promoting socially conscious goals—at the expense of workers’ financial interests.
On Wall Street and in the private sector
Crashing EV sales cause headaches for big banks
The ongoing collapse of the electric vehicle (EV) market is causing problems for banks that had pledged to make more loans to achieve what they referred to as decarbonizing their portfolios. As EV sales dry up, auto manufacturers are rethinking EV manufacturing plans, forcing their bankers to rethink their own strategies:
A slowdown in EV adoption has potentially huge implications for the energy transition. It also has ramifications for the many financial institutions that have pledged to decarbonize the loans and investments they make.
For lenders such as Bank of America Corp., HSBC Holdings Plc and JPMorgan Chase & Co. that have committed to reduce emissions associated with their financing activities in high-carbon sectors, the auto industry seemed to have a relatively clear path. Unlike certain hard-to-abate industries where getting to net zero relies on scaling up nascent technologies, a widely held assumption was that government incentives and consumer demand for EVs could be counted upon for a smooth transition.
By extension, banks could just sit back and wait to hit their targets without much effort. But now, recent statements from many of the world’s biggest auto manufacturers have given bankers cause to question that strategy.
Global ESG investments see outflows for first time
Although American ESG funds and British ESG funds have seen outflows over the past couple of years, ESG had continued to grow globally until recently:
Although buoyant markets are still lifting their overall assets under management — now at apparently over $1.7tn — ESG funds are suffering severe outflows for the first time in their (admittedly limited) history this year.
The recent outflows can’t be based on dismal markets and broad outflows either: global equity funds that don’t explicitly market themselves as ESG-focused have taken in $216bn already this year, according to EPFR’s data….
[SocGen’s Arthur] Van Slooten reckons that the outflows are mainly due to the underperformance of a lot of mainstream ESG indices and approaches, and argues that an “overhaul” of the strategy — naturally including more analyst forecasts — would be better.