How Should ESG Backers Deal With Fossil Fuel Users?

What is the best way to transition to renewables from fossil fuels? Active pressure that pushes emitters to change their ways, according to a webinar on energy transition, organized by the Global Strategic Communications Council, an advocacy organization on climate and energy.

Negotiation is a start, said Francois Humbert, one of the panelists at the forum, held January 18. The lead engagement manager at Italy’s Generali Insurance Asset Management, he described how his firm encouraged CEZ Group, a major utility in the Czech Republic, to move away from coal. As a large bondholder, the financial company has significant clout, and it has been a staunch advocate of convincing CEZ and others to make progress toward the emissions standards set by the 2015 Paris Climate Agreement.

Humbert added that “this type of skill is not naturally present in finance, and we need to develop [it].” He noted that CEZ “publicly recognized” that “because of us, it has achieved science-based targets” for emissions.

Certainly, the power company last year declared that it would move from 25% of its energy from coal in 2025 to 12.5% by 2030. CEZ pledged to use hydro, wind and solar energy to replace coal. The company could not be reached for comment on the role of Generali as a catalyst for its coal-to-renewables strategy. But it confirmed in a statement that it had formed a “partnership” on emissions changes with Generali in 2018.

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To be sure, the panel was not a balanced one: No anti-ESG advocates were on hand to have their say. Their side has objected to sustainability and other climate-focused goals as being part of left-wing agendas that strive to override capitalism and thus hinder revenue and earnings. And not all emitters are as accommodating as CEZ.

Perhaps most significantly, the push for decarbonization is easier in Europe than in the U.S., where there are active campaigns to bar public pension plans and sovereign wealth funds from adopting environmental, social and governance precepts in investing.

Another panelist, Illinois Treasurer Michael Frerichs, decried “the right’s campaign against sustainable investing.” Backed by the fossil fuel industry, Republican politicians have mounted “an active campaign to distract, to obfuscate, to frighten Americans,” the Democrat said.

Thus far, he went on, opponents have fallen short on their effort to crush ESG investing. He pointed out that a U.S. District Court judge in Texas, appointed by former President Donald Trump, last September rejected a bid by red states to overturn a Department of Labor rule permitting ESG considerations in selecting retirement plan investments. Late last week, 25 GOP state attorneys general filed an appeal to reverse the Texas judge’s decision. Frerichs also alluded to President Joe Biden’s veto last March of a congressionally passed measure to block the rule. States that officially support ESG investing have $3.5 trillion in assets under management, while anti-ESG states control less, about $1 trillion, he said.

Despite what anti-ESG forces contend, companies following ESG tenets have better financial results than businesses that do not, argued panelist Andrew Behar, the CEO of As You Sow, a nonprofit advocacy group that supports corporate social responsibility. Behar said his organization has filed 74 shareholder resolutions for 2024, seeking to further ESG, and the group’s study of 1,641 companies found that those with strong diversity programs had outpaced others in such areas as free cash flow per share and 10-year stock returns.

Anti-ESG devotees prefer not to look at the risk entailed by ignoring diversity and other ESG principles, he charged. Behar said, “If somebody says, ‘Don’t look at risk,’ you know they’re hiding something. If they pass a law to say it’s illegal to look at risk, then you should really look at the risk very, very closely.”

A warming climate will be hazardous for people drawing pensions in the 2070s and later, warned panelist Laura Hillis, director for climate and environment at the Church of England Pensions Board. “So that’s part of the reason why stewardship is such an important part of what we do,” she explained.

After five years of trying to convince oil and gas companies to align themselves more closely to ESG guidelines, the church plan indicated that it was disappointed in the response. Thus, in 2023, it divested its holdings in BP, Shell and TotalEnergies. Now, Hillis said, it is changing the focus to banks, hoping to curb their lending to energy companies. The plan also will try to convince big industrial fossil-fuel users to limit their exposure to those energy sources.

The goal, she said, is to “smooth the way for the full economic decarbonization of the global economy.”