The results are expected to be released in October and are likely to be adopted rapidly as a worldwide baseline, although it is unlikely it will be ambitious enough to satisfy the EU. Companies need to hear from their investors that climate plans are not just a nice to have, theyre a must-have.. Business that have already stated on the sometimes complex path of integrating sustainability into their corporate purpose will find themselves best able to engage with shareholders when the time comes. The trend has also caught policymakers' attention. That was the message the retail giants shareholders sent on Jan. 27, when 70% of them votedto call on the company to set a strategy for eliminating carbon emissions from its value chain by 2050. Taken together, along with the ESG frameworks mentioned above, these initiatives coalesce into a patchwork of what is and isnt green or sustainable and might help drain the "alphabet soup"of different ESG standards currently on the market. It can also lead to greenwashing concerns. In September, a coalition of 220 financial institutions whose assets amount to more than USD$29.4 trillion sent a letter to over 1,600 companies saying only science-based targets for reducing emissions will be acceptable, and that a failure to align with the climate science threatens a safe and prosperous economy. Large pension schemeswill follow from October this year, BEIS is consulting on expanding TCFD reporting to include publicly quoted companies, large private companies and Limited Liability Partnerships (LLPs), and the FCA is consulting on enhancing climate-related disclosures by standard listed companies and asset managers, life insurers and FCA-regulated pensions providers. Glass Lewis and ISS both recommended a vote against. The pursuit of corporate profits has contributed to the climate crisis, but some believe it can also help solve it. By providing your email, you agree to the Quartz Privacy Policy. Corporate Social Responsibility and Impact, "Shareholder Activism and Firms' Voluntary Disclosure of Climate Change Risks. https://www.barrons.com/articles/esg-sustainable-climate-investing-shareholder-activism-51655249538. There are some technical problems as well, like a lack of clarity in some instances, and a wider debate about whether yes/no votes are the right way to go or if climate-competent boards would be a more successful next step. This follows targeting by the Climate Action 100+ initiative, (which is backed by more than 600 investors managing more than USD$55trillion in assets focussing on companies covering over 80% of global industrial emissions), and advocacy group Market Forces. Collectively these actors now cover nearly 25% of global CO2 emissions and over 50% of GDP.. JPMorgan, for one, is putting the new SEC policy to the test, and asking the agency to toss a series of climate-related resolutions brought by, among others, a group of activist nuns. HSBC worked with the ShareAction coalition to table a management-backed resolution committing the bank to phasing-out coal financing by 2040. According to an analysis by Bloomberg Intelligence, at the current rate, global ESG assets could exceed $53 trillion by 2025. In this article, we take stock on how those pressures have played out and evolved over the 2021 AGM season, how the mood has changed, and where we are likely to go next. The miner saw 94% vote in favour and management pledge to reach net zero by 2050 and cut emissions by 40% by 2030. Some believe it's misguided to trust in the free market to solve the climate crisis, which it arguably caused, and that activist shareholders are doing more harm than good. That is nearly double the number in 2021, according to data from Sustainalytics, the sustainability-rating arm of Morningstar. "This is fundamentally not the role of a public company, and it's unfair to investors who may not agree with his politics," Charles Elson, a corporate governance expert at the University of Delaware, told Fox Business News in response to Fink's 2019 letter. The statement also includes a framework for net zero alignment disclosures based on the TCFD pillars and CA100+ Net Zero Alignment Indicators, offering yet another model for how to manage climate-related disclosures. These are some of our most ambitious editorial projects. Enjoy! But investors are growing more cautious when demanding aggressive climate actions this yearand that is not necessarily a bad thing. Your opinion can help us make it better. Pressure is also coming from an insurance angle. One of the most recent is the Net Zero Investment Consultants Initiative (NZICI) although there are many others, including the Net Zero Asset Owners Alliance, Net Zero Bankers Alliance, Net Zero Insurance Alliance and umbrella alliance of alliances the Glasgow Financial Alliance for Net Zero (GFANZ). Despite support from investors like BlackRock and Norges Bank for the vote, the Office of New York City Comptroller and CalPERS abstained from the Vinci vote. A record 22% of resolutions focusing on environmental or social issues passed at US companies during the year, according to RBC Capital Markets. But companies that dont abide by them risk losing control of their boards and the financial support of institutional investors, making them a powerful tool to alter corporate climate behavior. It is not 'woke.' Shareholder resolutions in the US arent legally binding. In April, we considered the different pressures driving changes in corporate behaviour towards the transition to a low carbon economy, beyond just disclosures under the Taskforce for Climate-related Financial Disclosures (TCFD) framework. The UNs Race to Zero, for example, has mobilized a coalition of leading net zero initiatives, representing 733 cities, 31 regions, 3,067 businesses, 173 of the biggest investors, and 622 Higher Education Institutions forming the largest ever alliance committed to achieving net zero carbon emissions by 2050 at the latest. The lack of consistency at present can hinder transparency to the extent they make comparisons across different business difficult. The requirement to make climate-related disclosures based on the TCFD framework continues to spread. 1 scalping of Exxons board comes to mind, and proxy advisors like ISS Governance have recently introduced new guidance saying that under extraordinary circumstances, they "will consider recommending a vote against individual directors for material failures of governance, stewardship, or risk oversight, including demonstrably poor risk oversight of environmental and social issues, including climate change. Thats down from 65 in 2016, which Bloomberg senior ESG analyst Rob Du Boff attributed to lingering obstacles posed by Donald Trump-era regulations, and a growing willingness by companies to disclose climate data (which was the chief request of most early resolutions). Investors in Costco are mad as hell about the company being a laggard on climate change, and theyre not going to take it anymore. However, compared to even last year, the direction of travel towards demanding that more businesses have more credible ideas about engaging with climate change is clear. Where shareholders can understand the financial benefits of climate-related votes, they are likely to be especially successful. Asset manager BlackRock abstained on the basis the wording was overly ambiguous, arguing that financial services was too broad and includes many activities beyond those highlighted in the resolution. Support is even growing for emissions-related resolutions at oil majors. I am expecting to see a big increase in proposals in 2022, Du Boff said. That change should make it easier for shareholder groups to bring more ambitious resolutions that directly target a companys core operations and sources of emissions. The world of climate votes has come a long way since 2019 when The Childrens Investment fund (TCI) pressed Spains state-owned airport owner Aena to have the worlds first vote on its climate transition plan. In something of an endorsement of TCFD, the Taskforce for Natural-related Financial Disclosures (TNFD) was launched in July 2020, reflecting the need to consider not just carbon emissions, but also the biodiversity and natural capital on which all business have some level of reliance. ", 2022 Deutsche Welle | For example, the IIGCCs framework launched earlier this year which saw 53 investors with a combined USD$14 trillion in assets take steps to define an industry standard in respect of net zero investing. Asset managers want to continue to raise money, and given the investor focus on ESG, this is a trend they have to respond to, said Julie McLaughlin, managing director for energy at the consulting firm Alvarez & Marsal. In this way he seems to enjoy the best of both worlds, walking a tightrope between corporateand environmental interests. Barclays shareholders considered Market Forces proposal asking the bank to cut back finance for fossil fuels on climate grounds in order for it to align with the Paris Agreement. These people use their position as shareholders of publicly traded corporations to put pressure on a company's management and influence how it is run. Rio Tintos AGM in April saw proposals brought forward relating to lobbying and setting emissions reduction targets. "We know that climate risk is investment risk," he wrote in his 2021 letter. "Fink apparently wants to be above the political fray," Moira Birss, climate and finance director at the environmental organization Amazon Watch said in a statement responding to this year's letter. ExxonMobil has seen three of its board members replaced with climate-competent board members. "This year has shown that there is going to be great pressure on issuers and their boards to improve their disclosure on ESG practices, such as climate change targets and focus on diversity, equity and inclusion.". Investors have started demanding more from firms in areas like sustainability and diversity. Often they put forth a formal proposal for change, which is voted on at the annual shareholder meeting. The activist Australasian Centre for Corporate Responsibility (ACCR) for example has brought a claim based on consumer protection against one of Australias largest independent oil companies, Santos, for saying that its natural gas provides clean energy, and that is has a clear and credible plan to achieve net zero by 2040. This has in part been reflected in disposals from businesses looking to rebalance their holdings into something more climate-positive. The vote passed with overwhelming support, suggesting the value of management engaging with activists. This is complemented in the meantime by the Competition and Markets Authoritys publication of a Green Claims Code to help guide businesses when making green claims. Flammer, Caroline, Michael W. Toffel, and Kala Viswanathan. Adopting the Say on Climate approach, the statement calls for detailed corporate net zero transition plans to be drawn up, disclosed, and put to routine votes, as well as identifying directors responsible for net zero transition planning. But some large asset managers are also threatening to vote against companies board members and auditing firms if they dont demonstrate progress on climate. His outspokenness has earned critics from all sides. The bank will also need to set clear, measurable short and medium-term targets. The plan sets minimum expectations about what a transition plan for oil and gas must include. Not everyone is buying it. Sometimes they even push for the company to be sold or broken up. And in spite of high-profile comments about climate by BlackRock CEO Larry Fink, the biggest asset managerswhich, as major shareholders in just about every big company, have the votes that matter moststill vote against at least half of ESG resolutions while voting in support of company management (pdf) on most other issues. Take a look at the beta version of dw.com. "But by playing nice with those profiting offthe causes of climate change, he's making the political choice to reject climate science, which makes absolutely clear that a rapid transition from all fossil fuels is unquestionably urgent and necessary. The biggest victory of 2021 for climate activists was at Exxon, when candidates backed by the activist hedge fund Engine #1 managed to nab three seats on the companys board. Thats really a shifting narrative, and what we try to convince investors of.. We find that environmental shareholder activism increases the voluntary disclosure of climate change risks, especially if initiated by institutional investors, and even more so if initiated by long-term institutional investors. This AGM season has seen a rapid proliferation of climate votes in various forms, with talk already of refining how activist investors can best engage.
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