How Climate Action 100 Applies Pressure to Corporations
As an investor group, Climate Action 100 applies pressure to companies in several ways.
Shareholder resolutions are one way for investors to demand action from publicly traded corporations. For example, investors have demanded that Caterpillar, Duke Energy, Ford Motor Company, and General Motors disclose their direct and indirect climate change lobbying expenses. With greater disclosure of lobbying activities, investors and the public will be better able to evaluate how corporations seek to influence public policy.
In 2019, one-third of General Motors investors voted in favor of lobbying disclosure. Added pressure by the Climate Action 100 group may lead to increased support in future disclosure resolutions.
Making Climate Change a Top Concern for the Board of Directors
In addition to shareholder resolutions, Climate Action 100 issues progress reports on its efforts. For example, the group's 2019 progress report shows percentages for "companies that have nominated a board member or board committee with clear responsibility for climate change policy” as the following:
- Consumer products: 93%
- Oil & gas: 85%
- Transportation: 81%
- Utilities & power generation: 74%
However, progress is far from universal. In the mining and materials industry, only 61% of companies have nominated a board member or committee with responsibility for climate change policy. Furthermore, only 52% of mining and metals companies have "set long‑term quantitative targets for reducing GHG emissions," according to the 2019 progress report.
The Top Industries Targeted by Climate Action 100
The investor group's list of targeted companies goes far beyond well known corporate polluters. The effort also has a global scope: companies based in North America only make up 33% of the list. From an industry perspective, the investors are targeting a broad section of the global economy, including oil & gas (24% of the list), utilities and power producers (19% of the list), and transportation (16%).
Boeing, Dow, Ford, and Pepsi — US Firms Under Pressure
American companies targeted by the effort include some of the country's largest firms. Targeted US companies include Berkshire Hathaway, Boeing Company, Dow Inc., Ford Motor Company, General Motors Company, and PepsiCo, Inc.
Technology Companies are Not Immune From Scrutiny
Technology companies have not escaped notice either. Climate Action 100 has also targeted multiple tech firms such as Panasonic, Raytheon Technologies, and Hitachi.
In the future, the fund might add technology giants like Amazon, Google, and Microsoft to the list because these companies run massive data centers for their cloud computing businesses. One industry estimate found that "[data centers account for] three percent of the global electricity supply and accounting for about two percent of total greenhouse gas emissions," on par with the aviation industry.
Focus on Climate Change and Investor Returns
How will increased climate change activism by shareholders impact returns? That's a key question to keep in mind, especially for pension funds required to deliver returns to their members. Some investment vehicles illustrate that climate change-focused investment provides adequate returns.
- iShares Global Clean Energy ETF (ICLN). The ETF had a terrible 2018 with a negative 8.6% return, followed by a booming 2019 when it achieved a 43% annual return.
- Invesco Solar ETF (TAN). This solar energy fund has achieved a 20% return over five years.
- SPDR MSCI ACWI Low Carbon Target ETF (LOWC). With more than 1500 securities, LOWC offers more diversification. The fund has delivered a 10% return over five years.
In contrast, VTI has achieved a 13% return over for five and ten year periods. VTI, officially known as Vanguard Total Stock Market ETF, aims to track the entire US stock market's performance.
This comparison suggests that investors exclusively focus on climate-friendly investors who may suffer lower returns than a general stock market index. However, it is also clear that investors can achieve positive returns with a climate change focus.
New Opportunities for Startups Addressing Climate Change
Investor appetite for climate change-related investments is unlikely to disappear anytime soon. Institutional investors like Danske Bank, Harvard University Endowment, New York City Pension Funds, New York State Common Retirement Fund, and the New Zealand Superannuation Fund are using Climate Action 100 principles investments. Retail investors are starting to invest more in solar investments and low carbon funds.
Due to this changing reality, clean energy and related startups are likely to have more opportunities to seek capital in the coming years. Several clean energy startups landed investment dollars in 2020, including InPipe Energy (seed investment in 2020) and Natel Energy ($11 million investment in 2020).
About the Author
Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.