Robeco logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS – The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorised to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

Robeco Institutional Asset Management UK Limited (“RIAM UK”) markets the Funds of Robeco Institutional Asset Management B.V. (“ROBECO”) to institutional clients and professional investors only. Private investors seeking information about the Robeco Funds should consult with an Independent Financial Adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing the website.

RIAM UK is an authorised distributor for ROBECO Funds in the UK and has marketing approval for the funds listed on the website, all of which are UCITS Funds. ROBECO is authorised by the AFM and subject to limited regulation by the Financial Conduct Authority.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor, you should therefore not proceed. By proceeding, please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

Decline

22-02-2024 · SI Debate

SI Dilemma: A tale of two court cases

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…. “

    Authors

  • Masja Zandbergen-Albers - Head of Sustainability Integration

    Masja Zandbergen-Albers

    Head of Sustainability Integration

Summary

  1. Court cases give contradictory messages about climate action

  2. Investors are pressured to be more and less sustainable at the same time

  3. Sustainability is continuing, but with caution in communicating about it

This opening sentence of Charles Dickens’ ‘A tale of two cities’, full of paradoxes, well describes my mood of late. The discussion on sustainability seems to become more polarized by the day. Two recent litigation cases against financial companies illustrate this phenomenon. You could say it has become ‘A tale of two court cases’ in how to navigate this situation.

The financial industry is under pressure to do more on sustainability

In recent years, we have seen companies being sued because of their lack of sustainable practices. Direct impacts like addictive medication, fraud and environmental spills are common topics. The case from Friends of the Earth Netherlands1 against Shell was on another level, when they held the company responsible for climate change.

The group demanded that Shell set CO2 emissions targets not only on Scope 1 and 2 (emissions from operations), but also Scope 3 emission from the use of its products, such as the use of oil and gas in cars. Under the Dutch law’s ‘duty of care’ obligation, the courts ruled in Friends of the Earth’s favor.

Now it’s the financial industry’s turn. The NGO is suing ING Bank in the Netherlands for financing companies with poor climate plans. According to Friends of the Earth, under the same duty of care obligation, ING must ensure that its climate policy is in accordance with the 1.5°C target of the Paris Agreement, reducing its absolute emissions of CO2e by at least 43% in 2030 compared to 2019 levels.

And in addition, ING must not only ensure that all large corporate clients provide a good climate plan, but also cease financially supporting large corporate clients who do not have one within a year. This specifically includes clients who continue fossil fuel expansion, or who do not have a solid phase-out plan.

Keep up with the latest sustainable insights

Join our newsletter to explore the trends shaping SI.

How SI works

The financial industry is under pressure to do less on sustainability

In another case, the roles are reversed, with ExxonMobil taking an investor and an NGO to court. The oil giant filed a lawsuit in Texas against Follow This, an activist shareholder initiative, and Arjuna Capital, an investment manager in Massachusetts, after a shareholder proposal asked Exxon to set the same kind of Scope 3 emission reduction targets, that Shell had been told to adopt by the Dutch court.

Exxon sought to have the shareholder proposal excluded from its proxy statement, because it “deals with a matter relating to the company’s ordinary business operations” and because it addressed the same issue that was previously filed in 2023 and in 2022. The company claimed it was not in line with the resubmission criteria of the SEC, and that the proposal “does not seek to improve Exxon Mobil’s economic performance or create shareholder value”. Its objection succeeded, as the resolution was withdrawn, but Exxon is continuing with the lawsuit.

It’s no longer ‘nice to have’

Regardless of the outcome of the court case against ING Bank, it seems clear that at least in the Netherlands, having a good climate policy that also covers Scope 3 emissions is no longer just ‘nice to have’.

And regardless of the outcome of the lawsuit against Follow this and Arjuna, the practice of bypassing the SEC and taking direct legal action via a court might make shareholders hesitate to exercise their rights.

ESG topics over the last two years have become increasingly politicized. Taking shareholder cases to court might further escalate the debate on already sensitive topics. And even though this has happened before, it exhibits poor governance practices.

Beyond the courts

On the surface, it seems that ESG expectations toward portfolio companies in Europe and in the US might further move apart rather than move closer together. In reality, a recent ESG survey from Cerulli2 among US institutional investors shows a different picture. According to this survey, 68% of US institutional investors are integrating material ESG issues into their investment decision-making process. It is good to mention that this ESG integration is being done for purely financial reasons (the ‘pecuniary factor’), so it does not mean that portfolios will become more sustainable. It is about better pricing of externalities.

Asked about the impact of the anti-ESG movement, 40% of respondents said they would continue to integrate ESG and invest in sustainable and impact strategies, and 30% indicated it would have no impact on their business. No participants selected ‘We will stop incorporating ESG considerations into investment decisions’ or ’We will no longer offer ESG/sustainable investment products’.

When it comes to active ownership, nearly half of the responding institutions (46%) are active owners and another 33% plan to become so in the next 24 months. Of those, 69% are engaging with the management teams of underlying portfolio companies on ESG-related issues, and an additional 20% plan to expand their efforts through a range of methods: shareholder resolutions (31%), collaborative engagement (30%) and proxy voting (25%). Let’s hope these investors take this seriously, because institutional investors trying to make use of the shareholder rights should now be aware of potential legal action.

What has changed is the fact that institutional investors will become more cautious about their communications around sustainable investing. After greenwashing, ‘greenhushing’ is now becoming an issue. Therefore, we believe that the anti-ESG movement in the US should not be underestimated. It will get worse before it gets better.

At Robeco, sustainable investing will remain a key strategic pillar of our strategy. As was so elegantly expressed by Charles Dickens, sustainability is complex and can be paradoxical at times. That is why we will stick to our research-based approach toward ESG integration and sustainable investing to help our clients achieve their sustainability and their financial goals.

Footnotes

1 A Dutch environmental organization also known as ‘Milieudefensie’.
2 The Cerruli Edge: US Institutional, the ESG Edition: Q1 2024



Robeco

Robeco aims to enable its clients to achieve their financial and sustainability goals by providing superior investment returns and solutions.

Important information This disclaimer applies to any documents and the verbal or written comments of any person in presentations or webinars on this website and taken together is referred to herein as the “Information”. The services to which the Information relate are NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws and must not be relied or acted upon by any other persons. This Information does not constitute an offer to sell, or a solicitation of an offer to buy, any financial product, and may not be relied upon in connection with the purchase or sale of any financial product. You are cautioned against using this Information as the basis for making a decision to purchase any financial product. To the extent that you rely on the Information in connection with any investment decision, you do so at your own risk. The Information does not purport to be complete on any topic addressed. The Information may contain data or analysis prepared by third parties and no representation or warranty about the accuracy of such data or analysis is provided.
In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. Robeco Institutional Asset Management B.V. (“Robeco”) expressly prohibits any redistribution of the Information without the prior written consent of Robeco. The Information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to law, rule or regulation. Certain information contained in the Information includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results. Robeco Institutional Asset Management UK Limited (“RIAM UK”) is authorised and regulated by the Financial Conduct Authority. RIAM UK, 30 Fenchurch Street, Part Level 8, London EC3M 3BD (FCA Reference No:1007814). The company is registered in England and Wales under Ref No. 15362605.

In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. Robeco Institutional Asset Management B.V. (“Robeco”) expressly prohibits any redistribution of the Information without the prior written consent of Robeco. The Information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to law, rule or regulation. Certain information contained in the Information includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results. Robeco Institutional Asset Management B.V. is authorised as a manager of UCITS and AIFs by the Netherlands Authority for the Financial Markets and subject to limited regulation in the UK by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.