The resolution at ADM attracted only 4.2% votes in its favour, with BlackRock’s funds voting against the resolution, State Street abstaining, and Vanguard not voting at all. At Bunge, the resolution gained 29.3% votes in its favour, but tellingly all the funds of the three major asset management companies voted against the resolution.
Overall the three major asset managers voted in favour of only 10.7% of shareholder resolutions aiming for ESG improvements in commodity firms between 2014 and 2019. In contrast, they voted in favour of 95.9% of management resolutions seeking approval for dividend payments and stock buybacks.
Despite the considerable hype surrounding it, financial activism is therefore unlikely to change the behaviour of commodity trading firms, simply because these firms are organised in ways that insulate them from financial market pressures.
What about divestment as an alternative strategy to curb the destructive behaviour of commodity trading firms? Activists around the world have launched divestment campaigns calling on shareholders, creditors and underwriters to use the traders’ dependence on equity and debt markets to drive ESG improvements.
But the efficacy of equity divestment is limited for the same reasons as shareholder resolutions: few trading firms rely on financing from shareholders outside of the commodity trade. And despite the ecological devastation in which the commodity trading firms are involved, asset managers are unwilling to engage in bold divestment initiatives. For example, BlackRock announced a new climate plan in January 2020, which entails reducing exposure to coal mining companies. But BlackRock has no intention of divesting from Glencore, despite the fact that it extracts more coal than mining giants BHP Billiton and Anglo American combined.
There are also challenges to bringing about ESG improvements via credit divestment. In our research we find that ownership of the commodity traders’ bonds is widely dispersed, and this is likely to create collective action problems for activist bondholders. We also find that underwriting services are concentrated among the big banks, which might present opportunities for activists to demand that banks withhold these services to commodity traders that show no signs of improving ESG.
But even this strategy is limited by the fact that many of the commodity traders have been deleveraging in recent years. According to think tank Chain Reaction Research, reducing debts in this way limits the financing risks that commodity trading firms experience from divestment threats. And these threats might be further blunted by the shadow banking activities of commodity traders, which allow them to raise funds by taking assets off their balance sheets and selling those assets as securities. These activities circumvent standard practices of company disclosure and make it even more difficult for activist investors to trace the commodity traders’ financing sources.
Beyond financial activism
Given the limitations of shareholder resolutions and divestment, we are sceptical about the potential of financial activism to pressure commodity trading firms into reversing the socially and ecologically harmful effects of their activities.
Our intention is not to entirely dismiss the efforts of activist investors to address problems relating to the commodity trading firms. If nothing else, attempts at mobilising pressures within financial channels can raise vital awareness of the commodity traders and amplify their reputational risks. But meaningful resistance must go beyond shareholder resolutions and divestment campaigns to encompass other forms of mobilisation, including direct support for indigenous protest movements, pipeline blockades, consumer advocacy campaigns, electoral coalition-building, and labour organising.
Commodity trading firms are diverse, complex and ever-changing entities. This means that efforts to check their power must be similarly multifaceted and relentless. The future of the planet can’t simply be left to the financial system.Print