Case study by Boston Common Asset Management
Investor: Boston Common Asset Management
HQ: Boston, Massachusetts
Operations: Asset manager
USD AUM: $2.7 billion (as at 31/03/2018)
Asset mix: Global equities
Limiting global warming to less than 2 degrees Celsius is not only in the interest of the planet; it is also in the interest of banks and their shareholders and will require a major shift in the way we operate financially and economically. Progressive climate lobbying policies are essential to support the market mechanisms and regulations needed by the financial sector to accelerate the pace of financing needed to achieve this goal.
Since 2014, Boston Common Asset Management has led a collaborative engagement focused on assessing global banks’ preparedness for the transition to a low-carbon economy, including public policy engagement. In 2017, our outreach to 59 global banks, including some of the world’s largest institutions, was supported by over 100 investors with almost US$2 trillion in assets under management. We have engaged this same group of banks that represent some of the largest lenders to carbon-intensive sectors over the last four years (pre-COP 21). Regional partners have supported our efforts throughout this engagement initiative, including Aqueo (Canada), Australian Ethical Investment (Australia), Church of Sweden (Sweden), Ethos (Switzerland), SHARE (Canada) and ShareAction (UK). Support from institutional investors and organisations such as CDP, Ceres, First Affirmative Financial Network, Hermes and ICCR was also integral to engagement success. Reports in 2015 and 2017 looked primarily at banks’ climate policies, while the 2018 report focuses on implementation and action. Given rising investor expectations, we have progressively raised the bar with each call to action. Metrics over time demonstrate how banks perform relative to their peers in the following areas:
- Embedding climate strategy at the group level, focused on risks and opportunities
- Board-level oversight
- Explicit targets and metrics linked to compensation
- Industry collaboration
- Climate lobbying practices
Eighty percent of the banks – 47 out of 59 – responded to the letter or survey. Boston Common analysed the remaining 12 based on publicly available information to gauge progress since the first outreach in September 2014.
The 2018 report looked at three key areas of climate-related disclosure by banks:
- Climate-relevant strategy and implementation (including public policy engagements);
- Climate-related risk assessments and management; and
- Opportunities for low-carbon banking products and services.
These areas align with the new standard framework for reporting by all companies and financial institutions set out by the G20-supported TCFD.
The report identified notable progress in many areas, from wider industry collaboration to higher levels of support for low-carbon products and services. One of the key areas of underperformance was the lack of promotion for more progressive climate public policies – either directly or indirectly through their lobbying activities. Banks’ efforts to create the incentives and infrastructure the market requires to align with Paris Agreement commitments will be integral to limiting global warming to less than 2 degrees Celsius.
Bank survey results
While not included in the TCFD guidance, in 2018 we explicitly called for policy engagement, including through trade associations and other collaborations.
Bank survey questions included:
- Does the bank publicly disclose the extent to which it engages with policy makers on legislative and regulatory changes supportive of the low-carbon transition?
- Does the bank ensure that the industry groups and trade associations of which it is a member take progressive positions on climate legislation?
- Is the bank participating in industry initiatives and knowledge sharing on climate risks and solutions with other actors? If so, which?
We were disappointed to see that less than half (41%) of the banks surveyed ensured that the trade associations or industry groups of which they are members adopted progressive climate policies in line with their own.
In general, and particularly in Europe, banks have demonstrated a willingness to lobby governments for progressive climate policies. We were encouraged by the level of engagement with emerging market banks, such as those in China and Brazil. There has been significant focus by these banks on ensuring the right regulatory incentives and market environment to promote the low-carbon transition. Within developed Asia, Australian banks outperform their Japanese peers on policy and industry engagement. This should be of concern to investors given the Japanese government’s continued support for coal and thus bank financing of coal. Boston Common has co-convened three investor dialogues to discuss public policy engagement opportunities in Boston, New York and, most recently, in Tokyo with Japanese and foreign investors.
During this reporting cycle, we saw banks participate in the public TCFD consultation through their trade associations – even in Japan – and endorsement of G20 public policy statements supporting the Paris Agreement. Several US banks – Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase and Morgan Stanley – joined 30 other CEOs in signing an open letter in the Wall Street Journal encouraging the Trump Administration to stay in the Paris Agreement. Some banks supported the TCFD process through industry groups such as the Japanese Bankers Association and the Swedish Bankers Association. Other banks engaged policy makers as members of the Institutional Investors Group on Climate Change to promote robust and consistent reporting standards for energy-intensive sectors and financial institutions aligned with the TCFD’s recommendations.
We saw banks fall short in encouraging trade associations and industry groups to advocate for progressive climate policies, at least in line with their own policies. By not actively engaging with their own trade associations, banks could undermine prospects for business opportunities linked to progressive market regulations and subsidies to support the low-carbon transition.
In the coming year, through follow up by Boston Common, our partners and supporting investors, we hope to raise the level of progressive climate lobbying by banks across the globe. We will aim to ensure alignment with banks’ own climate policies and enable the market mechanisms and regulations to accelerate the much-needed transition to a low-carbon economy.
Converging on climate lobbying: aligning corporate practice with investor expectations
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Case study: Boston Common Asset Management