Financial institutions must immediately cease all new financial services and support to companies that are unable or unwilling to transform their activities to align them with a 1.5°C trajectory. However, companies not meeting the exclusion criteria or remaining in the portfolio should not be overlooked. If these companies want to engage the transformation necessary to align themselves with a 1.5ºC trajectory, they have no time to lose.

Financial institutions must incentivise this transformation through robust engagement policies founded on specific and time-bounded demands to deploy long-term 1.5ºC alignment strategies and immediate emission reduction measures to halve emissions by 2030.

For investors, dialogue alone is not enough to encourage a company to change: shareholders must also use their voting rights to oppose inadequate climate strategies. A robust climate voting strategy should apply not only to dedicated climate resolutions but also to strategic, management-proposed resolutions. Opposition votes must be justified by published, climate-related rationales in order to send a strong signal to companies.

Reclaim Finance believes that shareholders, but also bondholders, banks, and insurers can influence corporate behaviour. We call on financial institutions to adopt the following measures.

• Publish and share widely the financial institution’s demands to all client and/or portfolio companies (hereinafter referred to as “companies”), along with the sanctions that may be imposed if a company fails to comply with such demands.
• Develop and implement an escalation strategy that includes timebound actions of increasing intensity, applicable as long as the company shows no significant progress in addressing demands. This escalation strategy will mobilize all the tools available to financial institutions.

• For investors, these tools include: written or oral questions at annual general meetings, open letters, opinion pieces and public statements, filing shareholder resolutions, voting against management-proposed resolutions (director reelections, remuneration, etc), suspension of new investments, reduction of exposure, and total divestment.
  • Integrate engagement demands into the overall customer relationship and renew services dependent on the compliance with these demands.
  • Reach out to and convince other financial institutions to join the engagement efforts as part of an ambitious collaborative approach.

Reclaim Finance calls on financial institutions to ask companies for:

• Pledging to achieve net zero emissions by 2050 by aligning their activities with the 1.5°C target, with no or low overshoot and limited negative emissions, and for fossil fuel companies to move out of oil and gas by 2040 in EU/OECD countries and by 2050 in other countries, and for the coal sector to move out ten years earlier.

• Committing to integrate workers’ rights and local community rights in business transformation and train them for sustainable jobs in the future.

• Adopting a transition plan that includes the following elements:

  • Short-, medium- and long-term greenhouse gas emissions reduction targets for scopes 1, 2 and 3, expressed in both absolute and intensity terms, and encompassing all activities;
  • Possible contributions of captured greenhouse gas emissions volumes to each of the emissions reduction targets;
  • Carbon offsetting approaches that may be implemented to complement the emissions reduction targets;
  • Short- and medium-term capex plans, broken down by activity and specifying allocation between maintenance and development of the company’s assets;
  • The baseline scenario used to set the above-mentioned climate targets;
  • Other sector-specific relevant information, such as the short- and medium-term targeted energy mix evolution for companies in the energy and utility sector, or the evolution of production technologies used by steel producers.
• Committing to submit the company’s climate transition plan (containing the above-mentioned elements) and its implementation to an annual shareholder vote through two separate Say-on-Climate votes.
• Integrating climate criteria at the highest level, by linking board and executive remuneration to the achievement of climate goals aligned with a 1.5°C pathway.
• Committing to publicly not conduct or support anti-climate lobbying practices. This implies being transparent about lobbying expenditures and quitting professional associations that promote practices contradictory to the 1.5°C target or oppose public climate measures.

• Committing to (1) use scenarios with high chances of success, immediate emission reduction efforts, and low use of negative-emission technologies; (2) always follow the best available scenarios, methodologies and tools, and support efforts to develop them.

Scientists are clear: the development of new fossil fuel projects is incompatible with the goal of limiting global warming to 1.5°C. Fighting the expansion of fossil fuels must therefore be a priority for financial institutions claiming to align with a 1.5°C pathway, and must be a clear demand for companies.

Today, financial institutions must acknowledge the failure of past engagement efforts to transform fossil fuel developers and take action immediately. Thus, financial institutions must immediately refuse to provide new financial services and support to companies that continue to expand fossil fuels.

In particular, investors must immediately take the following actions regarding companies developing new fossil fuel projects:

• Refuse to provide any new services or financial support to these companies, prioritizing the cessation of bond investments, which are one of the main sources of financing for fossil fuel developers;
• Systematically vote against strategic, management-proposed resolution, and justify these decisions on climate grounds, at annual general meetings;
  • These resolutions include: director reelections, approval of board and executive remuneration, approval of financial statements, dividend pay-out, and authorization of share buybacks. Opposing these resolutions should be a priority, as they are generally put to a vote annually and can send a strong strategic message, especially given that dedicated climate resolutions (Say-on-Climate, shareholder proposals) are rare and most often advisory in nature.
  • Reclaim Finance recommends that investors publish their votes and rationales ahead of the annual general meeting in order to draw the market’s attention to an inadequate climate strategy and potentially convince other investors to vote similarly.