Barclays report calls for investor rethink on ESG

UK bank Barclays says investors should avoid short-term sell-offs and opt instead ‘for a long-term strategy of investing in assets that are fundamentally net zero (emissions) or net zero aligned in their operations’. Picture: AFP

As mining giants BHP and Rio Tinto escalate their efforts to become “net zero” by 2050, one of the world’s largest banks has backed a controversial policy which supports sticking with major polluters.

UK bank Barclays says investors should avoid short-term sell-offs and opt instead “for a long-term strategy of investing in assets that are fundamentally net zero (emissions) or net zero aligned in their operations”.

The Barclays report warns against the prevailing trend for divestment of “dirty assets” by big companies who may sell to new owners “who care little about the environment and will continue to run them – instead of sustainably running them down”.

It also takes aim at the criteria behind net zero investing, suggesting: “There is no unified single definition of what net zero aligned means,” while it brands carbon accounting standards as “spotty, inconsistent, unaudited and often based on some very rough estimates”.

“Investor engagement is usually more effective when an investor has a seat at the table, so divestment is likely to make the push for change harder,” says Barclays, which continues to finance coal and oil projects though it has made recent public commitments to reaching net zero targets by 2050.

Published under the title Net Zero Investing – The other tragedy on the horizon, the report will face stiff opposition from environmental, social and governance (ESG) activists in the lead up to the Glasgow climate conference COP26, due to start on October 31.

Continuing to support big polluters – even those with net zero alignment plans in place – flies in the face of ESG initiatives such as efforts by the former Bank of England governor Mark Carney to stop banks financing any new oil, gas or coal projects.

John McMurdo, the CEO of Australian Ethical, the best known ESG-focused fund manager in the local market, suggests: “We do not agree that divestment does not work, if enough investors or customers turn their back on a company it is a powerful signal and it can trigger change – it signals the company is not doing well enough.”

McMurdo says standards in carbon accounting and carbon credits will improve, while suggesting that major polluters such as big miners that can offer a convincing environmental plan will always be actively considered as investment possibilities.

He suggests Fortescue Metals Group and its ambitious environmental diversification projects have triggered a reconsideration of the iron ore miner by ethical investors.

The report arrives as both investors and listed companies try to find convincing pathways to a cleaner future as ESG activists are pressuring companies at every level, especially at annual meetings.

Commonwealth Bank chair Catherine Livingstone last week rejected activist calls at the bank’s AGM to stop financing new coal, oil and gas projects.

Responding to a call from environmental group Market Forces, Livingstone sought to strike a balance suggesting the bank would only extend financing to fossil fuel projects which supported the transmission to net zero emissions by 2050.

More than 300 financial institutions have signed up to the Glasgow Financial Alliance for Net Zero led by Mark Carney while more than 190 countries have pledged to limit global warming to below 2C above pre-industrial levels as part of the Paris Agreement.