(Bloomberg Opinion) -- BP Plc shareholders will vote at Tuesday’s annual general meeting on a resolution calling for the company to demonstrate how its business plans correspond with the aims of the Paris Agreement on climate change. It’s proof that investors have the clout to compel executives to pay attention to their environmental responsibilities – and suggests that threats to expel climate transgressors from stock exchanges are misguided.
The proposal seems bound to pass given that BP itself said in February that it supported the commitment, and that it has the backing of at least seven of the oil giant’s 20 biggest investors.
Such shareholder activism is likely to have a far greater effect in forcing the company to mend its carbon-emitting ways than stunts such as blockading its headquarters, however laudable the motives of the Greenpeace activists who prevented BP staff from getting into their office on Monday.
It’s certainly a better alternative than the proposal from the Labour Party’s John McDonnell. The shadow Chancellor of the Exchequer told the Guardian newspaper in an interview last week that he would consider changing the law to force the London Stock Exchange to de-list firms that fall short of their obligations to preserve the planet.
Quite apart from the problem of establishing objective criteria that could usefully identify offenders – should companies that sell meat-based foodstuffs fall foul of the current trend toward veganism, for example? – pushing companies out of the public markets and into private ownership, or preventing them from going public in the first place, ignores the reality that sunlight is the best disinfectant.
Tomas Carruthers has just won a 750,000-pound ($952,000) grant from Scottish Enterprise, the country’s government-funded economic development agency, to help finance his “Project Heather” plan to create an Edinburgh-based stock exchange. Companies seeking a listing would be required to “demonstrate how they intend to use the capital raised for a purposeful and positive impact on society or the environment,” according to the agency.
Given the current enthusiasm of the investment community for anything that ticks the environmental, social and governance boxes, I sympathize with the temptation to try to differentiate a new exchange by offering socially useful investments. But it strikes me as the wrong way to go about safeguarding the planet’s future. If the only startups that can win a place on Scotland’s mooted new exchange have already met whatever criteria it establishes, firms that either fail to clear the hurdles – or don’t even bother attempting to qualify – will still be able to go on imperiling our fragile ecosystem.
BP has already started to reduce its reliance on fossil fuels, allocating a modest 3 percent of its annual $15 billion of capital spending to low-carbon investments. In December 2017, it spent $200 million buying a 43 percent stake in Lightsource Renewable Energy Ltd., which develops and maintains photovoltaic farms in Europe. In June, it paid 130 million pounds for Chargemaster, the biggest electric vehicle charging company in the U.K.
It’s possible the company would be taking those baby steps without the pressure from investors such as Bruce Duguid, who took the lead in drafting the BP resolution as director of stewardship and engagement at Hermes Fund Managers, the London-based investment firm that started life managing the pension plan of U.K. telecom company BT Group Plc.
But Duguid told my Bloomberg News colleague Kelly Gilblom earlier this month that he was concerned that BP was “falling behind other competitors in terms of its ambitions” with regards to its climate obligations. Given the number of shareholders that have backed his efforts, he’s clearly not alone.
Climate activist Greta Thunberg has called for schoolchildren around the world to repeat March’s strike this Friday. The pressure on companies to reduce their carbon footprints will only intensify as the evidence of the damage being done mounts. Engagement, not ostracism, is the best way for the custodians of the world’s savings to add their clout to that pressure.
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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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