Too Woke?, page-2

Great comment, @TheBunyip. I hold the stock for similar reasons, but the board’s woke bias is more severe than I’d previously thought, and this concerns me as well. As you note, the business of insurance appears to be an afterthought for the IAG board, with so much of the meeting taken up by commentary and questions about climate and other ESG-related matters. To underline the point, here is some of the board's commentary at the AGM last Friday (from the official transcript).

• ...we've identified 5 groups of stakeholders that we create value for. [Customers, Shareholders, People, Communities, Environment]
• Diversity, equity and inclusion [are] an integral part of our culture and are supported by targets to increase the number of senior management roles for women to 50% by 2023.
• [O[ur stated gender diversity target to have no fewer than 30% of directors of each gender on the Board, we are actively focused on recruiting female directors…
• Our plan is to cease nsuring companies that predominantly participate in fossil fuel extraction, including oil and gas and power generation from coal. As of 30 June 2022, our exposure to these businesses was less than $1 million of premium or below 0.01% of our total gross written premium. ...we have taken steps to manage our own carbon footprint, and we've made a commitment to achieve net-zero emissions by 2050.
  [*]We're also developing solutions to help our customers adapt to a changing climate and a transition to a net-zero future. ...we're on track to meet our target to cease insuring entities, predominantly in the business of extracting fossil fuels, including oil and gas and power generation from coal, by the end of the current financial period.

At a broad level, these policies reflect the world in which we live; we’re all getting dragged to the left. But in IAG’s case, a shareholder register that is dominated by giant US asset managers with strong woke biases is the root cause, in my view.
Substantial shareholders (IAG) Shares held (%)
BlackRock Group 5.74
The Vanguard Group 5.00
State Street Corporation and subsidiaries 6.83
Perpetual Limited and subsidiaries 6.05

Of the above four instos, BlackRock is quite notorious for peddling an aggressive ESG agenda; Vanguard and State Street are not far behind. A Wall Street Journal article published earlier this year, “Calling Out ‘Emperor’ Larry Fink”, 17 Feb 2022, points out that ‘CEOs and corporate boards can find themselves on the wrong end of a shareholder vote if they refuse to accommodate BlackRock’s policy preferences on climate and “stakeholder capitalism.”’ So you can imagine that when the IAG board sits down to formulate strategy, they do the bidding of BlackRock and these other asset managers first and foremost, to prolong their reign. Consider a hypothetical IAG board agenda:

• Prioritise ''stakeholders" rather than shareholders: Tick.
• Hire and promote women based on gender targets, even if there are more talented men available: Tick.
• Reduce exposure to thermal coal, oil & gas etc. (no matter what the cost to shareholders): Tick.

…and so on.

Bizarrely, small shareholders have clambered onto the bandwagon too. I was struck by the number of individual ‘mum & dad’-type shareholders (not climate activists) at the AGM who (either online or in person) put up their hand and called on the board to do more about climate change and ESG generally. Here is a sample of what they had to say (again, from the transcript) -

• IAG is to be highly commended for excluding insurance in all fossil fuel extraction and production and coal-fired power by 2023.
• Has IAG considered suing coal, oil and gas companies to recover some of its increasing natural catastrophe claims? If not, would this be something the Board would consider in the future?
• What is your strategy of trying to promote to enhance more support for the EV vehicles? [W]ill IAG advocate publicly and actively for policies to rapidly reduce carbon emissions and phase out fossil fuel use and educate IAG's customers about climate change on premiums and participation in risk mitigation measures?

Why anyone would invest their hard-earned capital in a company and then demand that the board and management adopt measures that diminish profits is quite beyond me. But there it is, it seems to be what people want.

Conclusion
It’s not a bad time to own IAG given the propensity of insurance companies to benefit from rising interest rates, but the board’s addiction to woke and ESG-style stakeholder capitalism is cause for concern, and will probably erode profits unnecessarily over the long term. I intend to continue holding the stock, but as a cyclical play, nothing more.