Over the past decade, the investor community has worked with hundreds of companies, regulators and investment organizations to address climate change. Why? Because cutting emissions is a prudent and effective business management strategy that reduces a host of risks – physical, regulatory and reputational among others. It drives efficiency and is crucial to company competitiveness.
Unfortunately, this rational focus on climate-related risk has generated aggressive pushback from fossil fuel companies and well-funded red state political actors. In May 2022, an anti-ESG communications campaign was launched to slow climate activity and demonize ESG. In October, Republican state Attorneys General (AGs) announced an investigation into large banks participating in the Net Zero Banking Alliance. Then a flood of state anti-ESG bills were rolled out to ban banks and asset managers with climate policies or so-called oil “boycotts” from doing business with states. Although the majority of these bills were beaten back, a few became law and their ongoing costs to local and state municipalities can be counted in the billions.
In July 2023, Congressional Republicans next began “anti-woke ESG” hearings. Fortunately, their attempt to clothe prudent risk management in “woke” regalia failed to make the case that ignoring climate risk is a good investment strategy. Republican state AGs next published an open letter to asset managers, timed to coincide with voting for the 2023 proxy season. The letter claimed that consideration of climate factors risked violations of fiduciary duty, antitrust, and securities law. These claims were later carried into a House Judiciary Committee investigation of 14 asset managers, proxy advisors, and non-profits including As You Sow and Ceres, as well as net-zero groups including NZAM and GFANZ.
The Judiciary Committee’s allegations rely on the backward premise that decarbonizing corporate operations and reducing emissions to net zero have potentially “harmful effects on Americans’ freedom and economic well-being.” This conveniently ignores that climate change is an existential threat to life as we know it.
The Committee also asserts that shareholders are colluding to “deliver…net zero [greenhouse gas] emissions.” Despite their arguments, using the word “colluding,” does not magically convert actions to reduce investment risk into antitrust violations. Nor does it override shareholders’ long standing legal right to collaborate in raising issues of risk with companies.
A recent advisory opinion by Wilson Sonsini underscores that, despite incendiary rhetoric to the contrary, shareholder engagement on climate poses “negligible” antitrust risk so long as reasonable guardrails are in place. The most crucial point to understand is that antitrust law prohibits agreements by competitors in a single market from acting to reduce competition in that market. Since shareholders compete to buy and sell shares, and asset managers compete to attract investors to funds, they can violate antitrust laws by agreeing to restrict competition in those areas.
In contrast, shareholders do not risk antitrust problems when they ask companies whose shares they own to consider climate risk or adopt general climate actions. Nor are they barred from sharing publicly available knowledge; creating climate benchmarks and expectations; exercising the right to file, vote on and seek support for climate related shareholder proposals; or making public statements on individual rationales for voting. Even if these activities individually or collectively result in the reduction of oil and gas sales or help foster clean energy adoption, there is no antitrust issue if guardrails are applied.
Guardrails in shareholder actions are critical. Shareholders cannot coordinate the purchase or sale of shares in a company to affect share price; agree with fund competitors on fund pricing; share competitively sensitive information in any industry; work directly with oil and gas companies to restrict or increase the price of oil; or broker agreements within an industry requiring industry members to adopt specific actions that restrain trade. These activities are distinct from seeking general climate goals or policies that industry actors decide on and implement individually.
It is worth repeating: shareholders’ actions to reduce fossil fuel use, a fundamental driver of climate change, are not prohibited under antitrust law so long as the above guardrails are followed.
The good news is that, despite these orchestrated and well-funded state campaigns and congressional investigations, the financial industry’s work toward decarbonization continues. CA100+ remains steadfast in working with the world’s largest emitters to decrease greenhouse gas emissions, shareholders continue to file and vote on climate-related resolutions, and net zero organizations continue to support industry action. Finally, more companies than ever are disclosing emissions, setting GHG reduction targets and developing plans to achieve their reduction goals.
Danielle Fugere
Say On Climate Sr. Associate, As You Sow