Now more than ever, climate action is at the top of the corporate agenda, and rightly so. The climate crisis is putting global businesses at risk and demanding rapid adaptation.
With the build up to COP27, the question now is more about the pace of climate action.
Why not add the climate strategy into annual general meetings’ agenda? For now, the novelty of so-called “say-on-climate” resolutions leaves asset managers contemplating a strategic approach. Therefore, they should strongly consider developing a common framework.
Say-on-climate resolutions, which are ballot measures voluntarily added by companies, have increased in popularity over the past two voting seasons. But the practice is still irregular, with say-on-climate resolutions appearing in around 2% of global annual general meetings in 2022.
Shareholders have certainly noticed this trend, and reactions have varied.
For some, these resolutions create suspicion, seen as merely “ticking a box.” Investors fear such resolutions could create a distraction, aimed at saving time for more greenwashing and climate inaction. They suggest different forms of shareholder intervention, like opposing the re-election of board members. An example was the first climate-focused boardroom contest at Exxon’s 2021 annual general meeting.
For others, it promises the possibility that ESG practices – in particular climate risks – will be better managed by allowing shareholders to have greater influence.
Despite varying viewpoints, the fact that this practice is under development emphasizes the need for say-on-climate proposals to offer a truly ambitious and engaging mechanism of shareholder consultation on climate change.
Voluntary nature
NGOs and investor groups have played a key role in the formation of coalitions that have been critical to the success of the first climate shareholder resolutions. But more companies are now proposing their own climate resolutions, and they must demonstrate the credibility of their climate action plans to win shareholder support.
That trend is unlikely to render shareholder climate resolutions obsolete.
Say-on-climate proposals from companies are extremely wide ranging. Navigating companies’ climate action plans and considering voting decisions can prove challenging. What is certain, considering the role for shareholders, is that their understanding of climate issues – for each company and sector – is becoming crucial. Therefore, asset managers need to actualize their expectations in this field.
A challenge for asset managers
At this stage, it is difficult to conclude whether say-on-climate will become a common practice. Not only are there irregularities among sectors, but there is unequal development across countries.
The increase in say-on-climate votes goes hand-in-hand with the rapid diversification of the sectors concerned. This year, sectors included energy, transport, real estate and finance.
Say-on-climate’s geographical evolution shows an emergence in new markets in 2022, most notably in North America and some European countries. France and the UK particularly stand out, with more than 50% of all say-on-climate votes in the past two years.
In the absence of a common framework, specifying, for example, the ex-ante and/or ex-post nature of the resolution, performance indicators, baseline climate scenarios and voting frequency, these resolutions only reflect the multitude of approaches that coexist at the company level.
Yet, climate risks and opportunities vary according to the company and their sector of activity, among several other factors. This requires a qualitative analysis of say-on-climate votes. However, some elements are inherent to a credible climate strategy. This is why a common framework should be developed to facilitate global alignment to say-on-climate proposals.
Translated into voting guidelines, a common vision will help shareholders define key decision-making factors when assessing a climate action plan, thus allowing for more clarity of their votes.
Some asset managers have already changed their voting policies to tackle this challenge. This may lead to higher expectations and consequently, higher opposition rates. For example, BNP Paribas Asset Management recorded a 76% opposition rate to say-on-climate proposals in 2022 following the update of its voting policy.
During this year’s voting season we observed an increase of say-on-climate proposals but ambition levels that were relatively constant. A few companies stood out from their peers with more comprehensive climate plans, underpinned by credible decarbonization strategies and intermediary targets.
Nevertheless, we can question the relevance of such proposals for companies whose climate action plans are still lacking key steps, like the disclosure of absolute GHG emissions, a net-zero ambition by 2050 in line with the objectives of the Paris Agreement, or intermediary GHG emissions reduction targets in the short and medium terms.
Say-on-climate is, for now, voluntary. This means companies are free to decide on the best strategy. Someday, it may become subject to frameworks or regulations, like many other climate-related disclosures. Looking forward to the 2023 proxy season, we will see the conversation shift, focusing on a global perspective and the importance of standardization to guarantee best practices.
Paula Meissirel is a stewardship analyst at BNP Paribas Asset Management.
