Big Banks Can Block Shareholder Climate Proposals, SEC Rules

By Dana Drugmand

The Securities and Exchange Commission recently allowed two large banks to block a shareholder proposal addressing the climate impact of the banks’ investment portfolios.

The proposal requested that Goldman Sachs and Wells Fargo reduce the carbon footprint of their loan and investment portfolios to align with the Paris Climate Agreement’s goal of holding global warming below 2 degrees Celsius. The SEC’s decision means that it will be excluded from proxy materials that the companies’ shareholders will consider at the annual meetings.

“We’re very disappointed that [the SEC] won’t even allow this on the ballot,” said Danielle Fugere, president of As You Sow, a shareholder advocacy group involved with this resolution and other climate-related proposals.

She said the proposal, if passed by the company’s shareholders, would not have mandated action but would have raised the issue with the banks’ boards and management.

“This issue will not go away by ignoring it,” Fugere added.

The SEC, however, interpreted the proposal as a mandate. “In our view, the Proposal would require the Company to manage its lending and investment activities in alignment with the goals of the 2015 Paris Climate Agreement of maintaining global warming well below 2 degrees Celsius,” the Office of Chief Counsel wrote in a letter to the banks. “By imposing this overarching requirement, the Proposal would micromanage the Company by seeking to impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.”

Fugere said the SEC under the Trump administration has blocked a number of climate change proposals brought by shareholders last year.

“It is unacceptable for banks like Wells Fargo and Goldman Sachs to continue financing high-risk fossil fuel projects like Arctic drilling and tar sands. Despite this unfortunate SEC ruling, we hope to continue our dialogues with companies in the financial sector to raise shareholder concerns regarding the role banks play in increasing climate catastrophe,” said Lila Holzman, energy program manager of As You Sow.

Goldman Sachs and Wells Fargo are among the top five largest U.S. banks, with $957.19 billion and $1.87 trillion respectively in total assets. According to data from Rainforest Action Network, Goldman Sachs financed more than $3 billion in what it calls “extreme” fossil fuel projects in 2017 and Wells Fargo financed more than $1.7 billion.

By contrast, some large banking companies in Europe are starting to address the climate change impacts of the projects they finance. BNP Paribas, for example, has committed to stop funding oil and gas extracted from shale and tar sands as well as petroleum projects in the Arctic. Other banks such as ING, BBVA, Standard Chartered, and Société Générale are working on reducing the climate impact of their loans to align with the Paris Agreement goals.

Fugere said that shareholder concern over climate change and its economic impacts is growing, making it inexcusable for companies like Goldman Sachs and Wells Fargo to refuse to consider shifting their investment portfolios away from high-carbon fossil fuels. “We think it doesn’t show responsiveness to shareholder concerns,” she said.

“Investors will have to decide which banks they want to invest in,” Fugere said.