Support for say-on-climate proposals has dropped off year on year, though the number of votes— which are currently voluntary—has greatly increased, according to new research.
There is also an emerging divide among shareholders. European fund managers appear to be increasing their dissent, while their US counterparts appear to be maintaining high levels of support.
A study by SquareWell Partners, a shareholder advisory firm, reveals that the number of management sponsored say-on-climate (SoC) votes more than doubled over the past 12 months from 22 in 2021 to 46 in 2022.
However, while boards may be putting their climate plans forward for shareholder judgment, support is not always high. Average support last year was 86%, down from 93% in the previous year.
SquareWell found that EDF (Électricité de France) scored the highest approval for its climate plan with 99.6%, while Woodside Energy, an Australian oil exploration company, clocked the lowest at 50.3%.
Taking the fifth
In the UK’s voting, 20% is considered a threshold for significant dissent from shareholders: Barclays, United Utilities, Centrica and Shell all saw opposition to their climate plans of more than a fifth of votes cast.
Meanwhile, European fund managers appear to be growing more confident in expressing their concerns. Amundi Asset Management, a French investor, reduced its average support for SoC proposals from 95.5% in 2021 to 40% in 2022. Likewise, UK fund manager Legal & General cut its average backing from 81.8% to 40%.
Meanwhile, the world’s largest fund manager, BlackRock, has gone from 100% approval in 2021 to a slightly lower 97.5%.
The differences may be explained through divergent attitudes to say-on-climate voting. SquareWell notes that some of the figures indicated that some investors—in particular those who are part of the Climate Action 100+ group of investors—may have committed to more analysis of climate plans before voting.
Held to account
Elsewhere, SquareWell notes, there is concern that “SoC have the risk of shifting accountability for climate change from boards to investors. At least one fund manager, Allianz Global, makes it clear that it will ‘hold board members accountable if a company consistently fails to adequately respond to shareholder concerns regarding their climate ambitions.’”
Say-on-climate voting has come a long way in just a couple of years. Many consider Sir Chris Hohn, the hedge fund manager at the TCI Fund, to be the founding figure behind demands for investor votes on corporate climate plans.
He also led a campaign in 2021 for investors to vote against climate plans from Shell, after the energy giant revealed it would open up its climate blueprints to a shareholder vote. In the end, Shell won 89% support but would later see a Dutch court criticise its plans, following litigation brought by NGOs.
Carmen Ng, a director at Squarewell says high support for SoC proposals in 2021 likely came about because companies were rewarded for transparency rather than the strength of their climate action plans. Investors and proxy advisers were also unlikely to be adequately prepared.
“Investors have since strengthened their framewords for assessing the credibility of climate plans,” says Ng. She advises boards to refer the TCI checklist and information provided by investors. Boards should also remember many investors expect SoC votes to happen regularly, “where prgress or a more ambitious strategy and, or, targets expected.”
At the end of last year, investors and close observers of governance were already predicting a rise in SoC this year, with some professionals now beginning to issue guidance on best practice.
Companies are gearing up to deal with say-on-climate voting, though it is unclear whether regulators will ever move to make it mandatory. But even as companies join the SoC club, investors are improving their ability to analyse climate plans. And that makes them more critical when it comes to voting. Boards will need to ensure they are prepared.