More power for shareholders
Gary Gensler is the new chairman of the Securities and Exchange Commission (SEC). This MIT professor was known as a strict regulator when he was chairman of the US Commodity Futures Trading Commission (CFTC) from 2009 to 2014. Under his leadership, no fewer than 68 new regulations were introduced to regulate Credit Default Swaps. According to Gensler, the SEC does its job best when there are clear rules and also an agent standing beside it enforcing them. Last week, for the first time, the SEC required two major oil companies to allow shareholders to vote on Scope 3 carbon emissions. To determine the limits of the carbon footprint, the Greenhouse Gas Protocol – the world’s most widely used protocol for calculating greenhouse gas emissions – lists three scopes. Scope 1 covers direct CO2 emissions, while Scope 2 covers CO2 emissions resulting from the use of electricity or heat. Scope 3 is the broadest and includes indirect emissions, including CO2 produced by burning fossil fuels. In the case of oil companies, of course, Scope 3 CO2 emissions are huge. The SEC chair under Trump allowed oil companies not to vote on proposals to limit Scope 3 emissions. The influence of the US president by appointing his own chairman to various committees is very great. Trump used this power to deregulate extensively without having to go through Congress to repeal laws.
Biden thus indicates that he will not miss an opportunity to push through the Democrats’ climate agenda. The left-wing of the Democrats would like to see a Green New Deal, a concept that arose ten years ago, modeled on the New Deal under Roosevelt to combat the Depression. Thanks to this example in the United States, just about every continent now has its own Green Deal. Yet it is not easy for Biden to get the Green New Deal through Congress. Especially because of the minimal majority in the Senate, there will soon be a few moderate senators who will vote against it. By showing that he is not missing an opportunity by playing it through the various regulatory institutions, the consequences for investors could be huge. For example, the production costs of oil fell sharply under Trump because oil companies were much less affected by environmental regulations. With Biden, the roles are reversed. Not only will stricter rules raise production costs, but the SEC will also give shareholders more power. Earlier, the SEC refused a request from ExxonMobil to block a shareholder resolution asking how Exxon’s lobbying activities could be reconciled with the company’s pledge to combat global warming.
As shareholders gain more power, there is more interest from action groups in activating those shareholders. Many institutional investors are accountable to society. Especially in the current climate, it is extremely unwise for the reputation of such an investor not to vote or even to vote against. You can be sure that various action groups, preferably through the media, will come to seek redress at, for example, large pension funds and asset managers. Through a roundabout route, the social impact of the appointment of the new SEC chairman is therefore very great. Central to this discussion are the responsible development goals of the United Nations. It is this marketing success that has made SRI mainstream. Every dollar invested in it has an excellent return. Embracing these development goals may sometimes be dismissed as ‘greenwashing’, but thanks to the regulator, words are followed by deeds.