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Sometimes they even push for the company to be sold or broken up. 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. Interestingly, Prudential is working with the Asian Development Bank to address this kind of issue by developing a scheme to buy Asian coal-powered powers plants on favourable terms in order to shut them down early. Globally, average support for environmental votes have gone from 16% in 2019 to 27% so far in 2021. This follows targeting by Royal London Asset Management under the CA100+ campaign. For the best Barrons.com experience, please update to a modern browser. It's Fink's style to shareanannual letterin which he puts pressure on CEOsto address climate change. Despite the proliferation of Say on Climate-like votes and their apparent success, some activists as well as more traditional investors are moving away from this approach for fears it reduces a complex issue to a too-simple yes/no vote and might result in rubber stamping of transition plans over engagement with the changes that will be needed in the real world.

Membership commits them to integrating into their advice to clients ways to reduce carbon in their portfolios by 2050 if not before, within two years. 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. "We know that climate risk is investment risk," he wrote in his 2021 letter. Both Chevron and Exxonhave also conceded votes requiring them to report on climate on lobbying and to reduce scope 3 emissions. But investors are growing more cautious when demanding aggressive climate actions this yearand that is not necessarily a bad thing. 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. Contact "If 2021 has taught us anything, it is that ESG is on the radar of investors and it is likely to remain so," Edna Frimpong, head of international research at Diligent Institute, told IR magazine, an investor relations publication. 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. The Church Commissioners, for example, has said that they believe we can make a much greater impact in the world by staying invested in companies and changing them through direct engagement as a shareholder and have pledged to divest from all non-Paris aligned fossil fuels companies by 2023. Whilst both votes failed, they reflect the shift in attitudes that is seeing environmental votes rise up on the agenda in Japan, as it is elsewhere in the world. Investors in Costco are mad as hell about the company being a laggard on climate change, and theyre not going to take it anymore. To a large extent, the scale of change that will be required remains underestimated by many. CalPERS Anne Simpson, Managing Director for Board Governance & Sustainability, summed it up like this: If you start peeling off particular issues which shareholders vote on separately, then why arent we simply sitting on the board? The plan sets minimum expectations about what a transition plan for oil and gas must include. Increasingly, especially with the expansion ofTCFD and other standards and frameworks, solid sustainability credentials will be seen by investors and shareholders as a necessity, not just a nice-to-have. 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. At least 44 climate-specific resolutions reached a vote globally in 2021, according to Bloomberg Intelligence. 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). The pursuit of corporate profits has contributed to the climate crisis, but some believe it can also help solve it. It is not 'woke.' "It is not a social or ideological agenda. Investors one by one are realizing that whats in the best interest of an oil major, for example, is not necessarily in the best interest of their entire portfolio, said Mark van Baal, founder of Dutch activist shareholder group Follow This, which is behind emissions resolutions this year at nine oil majors. Investors want companies to clean up their act when it comes to the environment. By providing your email, you agree to the Quartz Privacy Policy. "Stakeholder capitalism is not about politics," the CEO wrote in this year's letter, published in January. In the US, the Biden administration is revisiting - with a view to no longer enforcing - the rules adopted in 2020 that questioned whether pension funds can take ESG factors into account when making investment and voting decisions. The CEO of BlackRock Inc., the world's largest asset management firm, which oversees more than $10 trillion (8.9 trillion) in assets, is perhaps the most well known activist investor today. The proposal went on to win 98% of shareholders approval, in part demonstrating the value to management of being proactive in suggesting actions, rather than appearing to be reactive to activist pressures. Now its the other way around, he said. Key to the Engines victory is that it was able to link its environmental arguments closely to Exxons bottom line, so something that should benefit people and planet was also about protecting profit. 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. It can also lead to greenwashing concerns.

Such disclosures, standards, and frameworks are often dogged by a lack of standardisation, making comparisons between businesses difficult for shareholders. In parallel, the UK is looking to develop its own green taxonomy and Sustainability Disclosure Requirements, based on the EUs green taxonomy and Corporate Sustainability Reporting Directive (CSRD), to provide a legislative underpinning that will help define what activities can be accurately labelled as green. However, to be effective, the whole package of incentives needs to be consistent with carbon reduction and not just one small bit of it. But in November, the Biden administration opened the door to more successful shareholder campaigns. Globally, the International Financial Reporting Standards Foundation (IFRS) consulted earlier this year on accommodating an International Sustainability Standards Board (ISSB) to set IFRS sustainability standards. Their tactics can be as straightforward as speaking with management or as aggressive as threatening a company with a lawsuit. Glass Lewis has in contrast advised shareholders to reject this plan, citing a lack of science-based targets and its scope 3 emissions reduction initiatives notwithstanding that the plan has both strengths and weaknesses. This reflects the concerns many have with a divestment approach that presses companies to dispose of problematic assets rather than take them out of the equation all together. Glass Lewis, another of the worlds largest asset managers, opposed 87% of these votes in 2019, but 75% this year. A record 22% of resolutions focusing on environmental or social issues passed at US companies during the year, according to RBC Capital Markets. In the US, it has increased from 36% last year to an impressive 55%. the extent to which businesses protect those that might lose out from the transition to net zero. Convened by the IIGCC and informed by the Transition Pathway Initiative (TPI), investors representing USD$10.4 trillion have taken the reins and set out a standard for net zero transition plans in the oil and gas sectors. [Shareholders should] delegate to the board and then hold the board accountable.

We have already seen the effect of this change in a number of pension funds votes. 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. The Race to Zero has in turn formed a foundation for a series of sector-specific Net Zero Alliances. Financial Institutions also continue to press companies to be greener. We also find that companies that voluntarily disclose climate change risks following environmental shareholder activism achieve a higher valuation post disclosure, suggesting that investors value transparency with respect to firms exposure to climate change risks. According to investor advocacy group Ceres, it was the first time for such a net-zero proposal to pass at any company. The vote at Costco augers what is likely to be a historic year for climate-focused activist shareholders, who have long lingered on the sidelines of companies annual general meetings, but are now gaining support for their proposals, and racking upwins.

Some say Larry Fink is trying to save the world, and they don't mean it as a compliment.

Most are brought by activist groups that hold a relatively small number of shares and must convince bigger investors to get on board. 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. But some large asset managers are also threatening to vote against companies board members and auditing firms if they dont demonstrate progress on climate. Increased shareholder attention, combined with tightening but still quite loose - statutory climate change regimes across the world, and the risk of stranded assets, means that holding onto high-carbon and hard-to-abate assets is becoming less and less attractive. Copyright 2022 Dow Jones & Company, Inc. All Rights Reserved. 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.

Between January and August 2021, 13% of ESG activist campaigns were successful, up from 11% the year before, according to a report by the Diligent Institute, a market research firm focused on corporate governance. 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. The requirement to make climate-related disclosures based on the TCFD framework continues to spread. Taking NZICI as an example, it has brought together 12 global investment consulting firms, setting them nine actions to undertake in order to support reaching net zero. Significant focus in placed on the need for comprehensive absolute and intensity emissions reduction targets, which cover all material emissions, as well as alignment of capital expenditure and production plans with a net zero target. It goes on to acknowledge winding-down as a legitimate strategy, as well as diversifying energy offerings or working through a companys value chain to re-shape demand. Investors have started demanding more from firms in areas like sustainability and diversity. Since then, there have been around 700 shareholder resolutions on environmental and social issues around the world, of which a little under half focussed on environmental issues. 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. Accessibility Statement | Copyright 2022 Dow Jones & Company, Inc. All Rights Reserved. Some votes have seen near unanimous approval, others languish in the sub-20% range of support. The resolution prohibits financing and underwriting of companies highly dependent on coal mining or coal power, as well as those planning new mines, plant or infrastructure for coal. That is despite the tiny activist hedge fund holding only 0.02% of Exxons shares. The US Securities and Exchange Commission is also looking to draw up new ESG rules relating to mandatory climate disclosures, having launched a Climate and ESG Enforcement Task Force. These can be wide ranging and might include: creating a response team made up of key board members, general counsel, external counsel, the bank and PR advisors; clearly articulating and updating the companys corporate purpose; engaging proactively with shareholders to ensure a full understanding of ESG aspects; ensuring ESG considerations are fully integrated into strategy; that actions keep pace with claims and keeping the board sighted on key strategic issues for when needed; and moving quickly to get ahead of changing expectations to limit the risk of targeting. 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. "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.".

It is also a reflection of the pace with which the sector moves, allowing multiple, competing initiatives to come forward. The combination of incoming and yet-to-be revealed ESG-related legal obligations, restive shareholders holding companies increasingly to account, and physical impacts from climate change on, for example, global supply chains, will all combine to see a likely increase in climate-related impacts, litigation and disruption. Since at least the 1980s, activist shareholder campaigns have targeted a whole suite of issues, from a company's financial structure to how it treats its employees to who sits on its board. In this way he seems to enjoy the best of both worlds, walking a tightrope between corporateand environmental interests. Many business have voluntarily signed up to public commitments to align themselves with net zero, which have gathered steam in the last year in advance of COP26. We're not done yet! The number of ESG-related shareholder campaigns has been on the rise, barring a decline between 2020 and 2021, presumably due to disruptions caused by the pandemic. An extraordinary 99% of votes in support came after the miner recommended earlier in the year that shareholders vote in favour of the proposals. 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. So too for law firms, with the founding of the Net Zero Lawyers Alliance by Slaughter and May and others earlier this year, which commits its members to be greener but also to work with clients to offer legal services that will help their clients become greener and decarbonise their businesses fully by 2050. Still, obstacles remain. Thats not going to cut it. Many in the corporate world think he's pushing a green agenda at the expense of profits or growth. Privacy Policy | Californias Climate Risk Disclosure Advisory Group recently advised, amongst 45 other recommendations, that the states public asset owners, including CalSTRS and CalPERS, should link executive remuneration to climate targets, and engage with others to do the same. The trend has also caught policymakers' attention.

Businesses that fall behind will look increasingly vulnerable to both the investor engagement talked about above, as well as the shareholder campaigns of activist and more traditional shareholders. This was for fear that these kinds of votes allow rubber stamping of weak climate plans instead of pinning responsibility on directors. ", How Georgia State University Increased Graduation Rates. The concern is that "Say on Climate"might fall prey to the same fate as "Say on Pay"votes a decade ago which have failed to achieve change. "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. The vote passed with overwhelming support, suggesting the value of management engaging with activists. 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. A growing number of shareholders are demanding environmental accountability from their investments. Fink has made it clear that he sees tackling the climate crisis as above all a smart way to make money. Once a certain level of disclosure is widely mandated, it should allow activist and other shareholders to more accurately and intensively engage. The miner saw 94% vote in favour and management pledge to reach net zero by 2050 and cut emissions by 40% by 2030. 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. Last year was a milestone for shareholder activists focused on climate issues. Although the vote failed (only a fifth voted in favour), it garnered double the votes won by the previous climate resolution in 2019, suggesting that whilst shareholders are giving boards a chance, they are keeping the spotlight on them to offer credible transition plans. BHP, for example, confirmed in August that it plans to exit oil & gas by merging its petroleum unit with Woodside Petroleum. However, it is still important that business and others start this process now to avoid finding themselves at a standing start once a winner does come forward and expectations harden, which would likely leave laggards vulnerable to increased activism and rising costs of capital. You can find more information in our data protection declaration. In the same vein, Cevian Capital, Europes largest activist investor, announced in March that it intended to punish companies that fail to set environmental, social and governance (ESG) targets when deciding executive pay, although its unclear to what extent this threat has been made good. With the COP26 climate conference in November set to crystallise what governments are willing to commit to, private sector initiatives are still highly influential in setting the pace and tone of what can be achieved. Shareholder resolutions related to climate concerns have been on the rise in recent years. In the UK, premium listed companies have been subject to disclosures based on TCFD since January 2021. Potentially unsubstantiated claims can also draw the ire of regulators as DWS is finding out in Germany and the US, following allegations that Deutsche Banks asset management arm misleadingly claimed that more than half of its $900 billion in assets under management have been invested in accordance with ESG criteria. In recent years, however, there has been a greater emphasis on environmental, social and governance concerns (ESG). Every industry can be part of the solution or part of the ongoing problem. Asset managers should be voting as a default position in favor of shareholder proposals on climate. In part, this mix reflects the diversity of views on how urgently we need to tackle climate change. Put another way, the whole value chain from financial institutions, to their borrowers, to borrowers customers, needs to move to decarbonise. BHPs recently unveiled Climate Transition Action Plan has also been met with mixed responses. The vote failed, attracting just 14% of votes in favour. Shareholder resolutions in the US arent legally binding. General Electric encouraged shareholders to support a climate proposal requiring the company to report on progress against the CA100+ Net Zero Company Benchmark. ", 2022 Deutsche Welle | This copy is for your personal, non-commercial use only. 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. Regulators at the Securities and Exchange Commissionsaid that it would no longer block resolutions that request companies adopt timeframes or targets to address climate change, which had sometimes been thrown out in the past. Often they put forth a formal proposal for change, which is voted on at the annual shareholder meeting. 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. It shows that simply offering a Say on Climate vote wont always be enough to ward off shareholder concerns - although for the most part such votes have been very successful in this AGM season. Glencore announced it would offer investors an advisory vote on the climate transition plans at its annual meeting in April. 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. "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.

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