While the energy crisis and politics appears to be driving change in asset managers’ decisions on ESG matters, it may only be temporary.
Appearing in Sustainable Views (Is lower support for shareholders’ ESG proposals really a trend? FT Specialist August 16, 2022) LBS’s Ioannis Ioannou says that asset managers are currently having to navigate a very complex landscape.
He says geopolitics – and more specifically the energy crisis that resulted from the war in Ukraine – is forcing asset managers to take a closer look at the rate and scale of the energy transition and the role of fossil fuels compared to renewables. This is reinforced by government actions, such as US president Joe Biden’s visit to Saudi Arabia in July, which seemed to signal that, in the short term, it may be acceptable to some degree “to bring fossil fuels back into the energy equation for the sake of energy security,” says Ioannou.
However, this signal is “actually mixed”, he adds, given that governments often claim that the solution to the energy security issue is to “double down on renewables yet, in the short run, we see them turning towards more fossil fuels”.
Furthermore, asset managers are not only observing but are first-hand experiencing how ESG is placed at the centre of a culture war that has been initiated by the Republicans in the US. Consider, says Ioannou, not only the anti-ESG anti-woke rhetoric as expressed by former Vice President Mike Pence in his recent Wall Street Journal opinion article, but also the regulatory actions that several states in the US are taking against banks and asset managers that integrate ESG. “They cast them, in a Trumpian/populist way, as "anti-fossil fuel" and woke.”
Ioannou says this mixed signaling within government, in combination with a very short-term understanding of the energy crisis, “may well have pushed asset managers to re-evaluate their expectations of companies, the perceived risks, and consequently, their ESG-related voting behaviour”.
In terms of ESG-related shareholder proposals submitted Ioannou says one should not read too much into the numbers from a single year, as it might be the case that in this particular year a relatively higher number of low-quality or absurd proposals were submitted.
He says for an accurate comparison, an evaluation of the quality of proposals is needed, along with more years of data “to make more robust inferences about whether this particular year's reduction is significant or meaningful”.
From, Is lower support for shareholders’ ESG proposals really a trend?, Sustainable Views, by the FT’s Rachel So.