High profile activist-led campaigns against fossil fuels and plastics are a sign of the times, indicating the increasing ability of NGOs to force global policy change. Robert Blood, managing director of NGO tracking and issues analysis firm SIGWATCH, explains where the NGOs get their power and what it means for investors.
In June this year, Britain’s largest asset manager Legal & General announced that it would remove Japan Post Holdings (JPH) from its $6.7bn Future World index funds. It added that any of its funds that still held shares would be instructed to vote against the re-election of JPH’s chairman. L&G justified the move by saying that JPH had “shown persistent inaction” to address climate risk.
JPH was reportedly shocked at L&G’s initiative, which came after a year of L&G quizzing the management of leading companies on their climate policies. In truth, it should not have been very surprised. Pressure on global financial institutions from US and European activist groups to divest from “extreme carbon” such as coal and oilsands has been building for over a decade. Inevitably, once Western financial institutions began divesting from their own funds, they would also evaluate the policies of their investments, regardless of which country they were located.
In the US, JP Morgan Chase, Bank of America, Wells Fargo, Citi, Morgan Stanley and Goldman Sachs have all announced coal exits. BNP Paribas, AXA, Allianz, RBS, Munich Re, ING, Rabobank, Standard Chartered and HSBC are among the institutions that have made similar moves in Europe.
The reason? High profile and often embarrassing campaigns by determined environmental activists to make them change policies, initially targeting US college endowment and pension funds and their fund trustees and professional investment advisors. These campaigns were modelled on the politically charged campus divestment battles of the 1980s which were intended to undermine the economy of apartheid South Africa. Although they achieved little in financial terms, they helped to make South Africa a pariah investment in the USA for many years.
This is how a policy made in America, adopted by a financial institution in Britain, can end up punishing a major institutional investor in Japan.
The ‘global ripple’ of NGO campaigning that discomforted JPH is unlikely to stop at carbon. Western activists have learnt from the climate divestment movement that sympathetic financial institutions are a highly effective way to give a campaign “bite”.
In the early years, only the SRI and ethical funds were interested in working with NGOs on policy matters, but of late, mainstream funds have joined too. In part this is due to pressure from political stakeholders and customers, particularly in relation to the institutions’ own funds, to take intangible risks such as human and indigenous peoples’ rights more seriously. The financial crash of 2008 was doubtless also a major stimulus. Many banks at that time, suddenly bereft of their political friends, felt a need to address their deep unpopularity, and beefing up their environmental and social governance (ESG) policies and engaging with NGOs was an obvious way to achieve this.
As well as human and indigenous rights, many other issues such as sustainability, environmental responsibility, labour standards and even animal rights will become more important for global financial institutions, as they develop ever more expansive policies and standards under pressure from NGOs and other stakeholders. By implication, as with carbon already, these moves will have major implications for the firms and industries in which these institutions invest.
Pension funds linked to ‘politically sensitive’ workforces such as public sector employees, health and education, are especially vulnerable to this kind of pressure. The campus campaigns of the carbon divestment movement quickly moved onto targeting staff pension funds once they secured the support of a significant number of faculty. In Denmark the state pension funds have been called out by Greenpeace on the same issue. In Sweden, Greenpeace launched a boycott of payments into the mandatory state pension scheme AP3 until it agreed to divest from coal, oil and gas.
Comparing level of NGO campaigning and public interest in the plastic pollution issue
Another area where investors are going to be increasingly exposed is plastics. Two years ago, plastic pollution had barely registered on the public consciousness. Today it is a major public concern, getting heavy media coverage, persuading governments to draw up legislation on plastic waste and companies to rethink their packaging and single-use plastics policies. The chart shows how through successive focused campaigns the plastics issue has jumped massively in public awareness (as measured by the relative volume of Google searches). The sharpest rise occurred within months of a major uptick in NGO campaigning, led by Greenpeace, Friends of the Earth and environmental and sustainability allies across the world.
We have seen a similar predictive association between campaigning and subsequent public anxiety on shale gas (fracking) in the US, and the environmental impact of meat consumption. It is clear that NGOs make the political weather on many issues. Now this power has been combined with the NGOs’ ability to project their influence globally through supportive financial institutions. Investors need to look hard at all their investments, including those in places with weak or non-existent NGO movements, to check if they are responding appropriately to the pressures forcing change elsewhere in the world. The saying, no man is an island, applies as much to businesses these days.
Robert Blood is managing director at SIGWATCH – www.sigwatch.com – the data gatherer and consultancy specialising in NGO campaigns. It tracks the activities of over 9,000 NGOs across the world, identifying emerging issues and quantifying their impact on corporate targets and industry sectors. Financial services firms constitute a third of their clients which also include many of the world’s leading multinationals.