Efforts are under way to increase boardroom accountability for climate strategy.

The Investor Forum, a group representing UK institutional investors, has called for a “say on climate”—a non-binding vote that would allow investors to air their opinion on a company’s approach.

In a move designed to put public pressure on boards over the issue of climate strategy, the Forum says a “non-binding shareholder vote would provide a powerful investor signal on the effectiveness of any mandated climate disclosures”.

“Such an approach would enable the investment community to take a leadership position in helping ensure that UK companies commit to advancing the UK’s net zero commitment,” it adds.

The call is timely coming as it does in the same year the UK will host November’s UN climate conference—COP26—in Glasgow. The Investor Forum also calculates that a “say on climate” will add to measures already under way in the UK, including compulsory TCFD (Task Force on Climate-related Financial Disclosures) reporting by 2025.

Andy Griffiths, executive director of the Forum, says: “In 2021, the focus on how companies and investors can advance the UK’s net zero commitments will rise still further. We argue that the UK has a unique opportunity to lead the world by embracing a ‘say-on-climate’ ahead of COP26.”

Climate strategy and disclosures

The Forum is no lightweight. Its members have £695bn invested in UK companies, which it says accounts for around a third of the FTSE All-Share market capitalisation. But it will be reliant on government mandating a climate vote at AGMs.

Ministers revealed in November that they would push ahead with mandatory TCFD reporting, publishing a timeline meaning some companies will need to report this year.

In recent months there has been a growing sense that companies are not yet disclosing the right climate change information. Recently, the Financial Reporting Council (FRC), the UK’s corporate reporting watchdog, concluded in a report that companies were failing to meet investor expectations on climate strategy and disclosures.

The position was perhaps confused by the availability of a plethora of reporting schemes, all aimed at slightly different disclosures, though with considerable overlap.

There is support in some quarter for the Forum’s call. Fiona Reynold’s chief executive of Principle for Responsible Investment says laggards in delivering climate change policies need a push.

“While there are many leaders across both the corporate and investment spheres, many others lag behind when it comes to taking meaningful action on climate change,” says Reynolds, “including setting targets for 2050 along with nearer-term targets and action plans.  Any initiatives that accelerate action by the private sector are welcome.”

While a “say on climate” is viewed as an important step, some believe it will not be enough to accelerate climate policies among companies. According to Sasja Beslik, a sustainble finance expert at Bank J. Safra Sarasin and a former CEO of Nordea Investment Funds Sweden, a non-binding vote may not result in “radical change”.

“As such, I do not believe that a non-binding ‘say on climate’ is enough to express the urgency that is required on climate action,” he says. “Some investors may also lack the resources to properly evaluate the complexities involved in assessing a company’s climate strategy and temperature trajectory.”

ESG in the US

If implemented, the Investor Forum proposals would place the UK in stark contrast to the US where there has been an effort to stymie the role of investors in pursuing an ESG agenda.

At the end of last year the Securities and Exchange Commission and the US Department for Labor passed that force proxy advisers to hand over their voting advice to companies at the same time as it goes to their investment client, while other measures mean pension funds must prioritise the “economic interests” of members rather than issues such as ESG.

These measures were widely opposed and observers expect the new US president Joe Biden to address the concerns.

Nell Minow of ValueEdge Advisors in New York recently told Board Agenda that the US could expect a wave of change on ESG driven by investors.

“There’s a tsunami coming beyond anything that government can do,” she says.

Climate remains the biggest risk in business, and pressure on boards will continue to mount. A “say on climate” does not seem unlikely.

____
This article updated on 13 January, 2021.