Investors must use their proxy voting rights to support ambitious, action-oriented resolutions at the world’s high-carbon companies to hold them accountable for their contribution to climate change.

By Joe Brooks, Project Officer – Climate Change, ShareAction

The latest assessment from the International Energy Agency (IEA) – the globally authoritative outlook on the energy landscape – paints a sobering yet familiar picture.

Greenhouse gas emissions are still rising, the world is still too reliant on fossil fuels, and the transition to a low-carbon economy is still moving at too slow a pace.

Put simply, we are running out of time to avert the most dangerous consequences of the climate emergency on our doorstep.

So, what will keep the wolf from the door?

While the challenge is a complex one, it is clear that a change in corporate behaviour is critical. A 2017 report by CDP found that just 100 companies have contributed more than 70% of the world’s greenhouse gas emissions since 1988.

These companies have been active agents in driving the climate crisis that the world now faces, yet still they show little sign of putting on the brakes.

Investor stewardship by proxy voting

The solution lies with investors. Proxy voting is the primary means by which shareholders can exert their stewardship rights over a company. As shareholders, investors are able to vote on a range of issues on the corporate agenda at a company’s annual general meeting (AGM).

How can this help to combat climate change?

Proxy voting can be used to challenge the re-election of boards that have shown persistent inaction on climate change, or directors that deny the science behind it entirely. It can challenge pay policies that incentivise economic expansion over sustainable growth.

Moreover, it can be used to support “shareholder resolutions” – proposals brought to the company by its own shareholders on specific climate-related issues such as lobbying, emissions targets or deforestation.

A robust approach to proxy voting at the world’s most carbon-intensive companies will not only mitigate the most severe impacts of climate change, but also ensure that companies are commercially resilient to the associated risks and opportunities.

Voting matters: Climate disclosure vs. action

ShareAction’s recent “Voting Matters” report analyses the proxy voting record of the world’s largest asset managers on climate-related shareholder resolutions.

One of the main findings of this report is that resolutions on climate-related disclosure receive a higher rate of support than resolutions requesting companies take a specific action, such as setting emissions reduction targets or reviewing its lobbying policies.

Why is this the case?

It is useful to take a closer look at the rationale provided by asset managers to support their voting decisions on specific resolutions.

Proxy voting rationales – what do investors say?

Disclosure Resolutions

The preference for disclosure resolutions among investors reflects the growing expectation that companies are transparent about how they manage climate-related risks.

In 2018, employees of Amazon.com Inc. filed a resolution at their own company to request a report disclosing its plans to address climate change.

In support of the proposal, M&G Investment Management argued that “the company should provide comprehensive disclosure to shareholders on its environmental impacts and risks”. Allianz Global Investors similarly disputed the company’s failure to disclose how it is “assessing and managing the physical risks related to climate change”.

Action Resolutions

Investors are less likely to support proposals that require companies to take a specific action through fear of micro-management.

RBC Global Asset Management described this challenge in its rationale for opposing the Follow This resolution filed at BP plc, which demanded comprehensive emissions targets across the value chain.

RBC Global Asset Management reasoned that some proposals may “limit the company’s flexibility to adapt to changing regulatory, political and economic environments”. It claimed that if a resolution is too prescriptive, it might “diminish long-term shareholder value by imposing unreasonable constraints on the board”.

Changing outlooks – a need for action-oriented shareholder resolutions

A number of asset managers have raised the prescriptive nature of action-oriented resolutions to justify their opposition. However, this can be contested on three points:

  • Regulations around stewardship are evolving to reflect a more active approach to climate risk management beyond disclosure. The new UK Stewardship Code has made it clearer that signatories should be looking to report on the activities and outcomes of stewardship, not just an overview of policy statements.
  • A shareholder resolution does not have to be unduly prescriptive. Indeed, most resolutions give the company freedom to achieve the desired objectives as it sees fit.
  • The climate crisis we face is an urgent issue. The latest IPCC Special Report on 1.5°C found that we have just 12 – now 11 – years to limit global temperature rise to 1.5°C and avoid the most dangerous impacts of climate change. The slow progress made by companies to date is insufficient to meet this challenge, and they require a push.

A call to action for investors

Over the next few years, it is clear that investors must take a more robust approach to proxy voting to hold high-carbon companies to account on climate change. Not just on disclosure resolutions, but on proposals that compel the company to take meaningful action on key issues such as lobbying and emissions targets.

The act of voting – from the Suffragist movement to the Brexit referendum – has shaped the social, political and economic landscape in which we live.

Investors must now use their own voting powers to help solve the issue of our time: climate change.

Read the full report: Voting Matters: Are asset managers using their proxy votes for climate action? >>