Despite all the talk of “say-on-climate” shareholders polls, many investores, it seems, would rather take the more direct route of voting against the reappointment of directors if they are unhappy with corporate climate plans.
The news comes in research by the shareholder advisory firm Georgeson. The study also concludes that many analysts worry about the quality of ESG metrics they receive from companies, while most investment managers are in the process of developing “more detailed” climate transition policy guidelines.
But it is the findings relating to say-on-climate votes that will surprise many. Such votes—where investors express their opinion on the state of corporate climate transition plans or policy documents—have risen in popularity and are expected to become more numerous in the coming AGM season.
Georgeson finds that 37% of investors hold the view that say-on-climate votes are “not important” to them. An equal number say they have no strong opinion. A quarter, 26%, say they are “important”.
That’s not to say investors are not interested in climate and sustainability. Georgeson observes, from interviews with 62 ESG analysts, representing $47trn in assets, that many investors not only want high-quality ESG disclosures, but also sight of a climate transition plan. They also want plans in line with the Paris target of restricting global warming to no more than 1.5°C above pre-industrial levels.
But many investors would prefer to hold directors to account over their plans by voting against them, rather than voting on a dedicated say-on-climate document.
One investor told Georgeson: “We would rather vote against directors. We really want to see a stated reduction plan between and now and 2030 that’s in line with science-based targets and 1.5 °C. If we are not seeing reasonable progress, we would hold the board accountable.”
Another added they would vote against directors who failed to produce “sufficient disclosure or strategy”.
A third said they would “not force companies to put a vote. We just want to see good transparency and disclosure. Shareholder say-on-climate proposals can be too prescriptive.”
Despite much discussion, and high-profile reporting in the press, investors are divided. Kiran Vasantham, head of investor engagement at Georgeson, says: “Despite the additional pressure that the climate transition policy guidelines will bring, investors are still not united in applying measures or mandating ESG metrics on climate resolutions such as the voluntary say-on-climate.”
However, Vasantham adds that investors are ramping up climate risk investment starting and voting policies which means “many asset managers are making a clear statement of intent to respond to asset owners’ demands over decarbonisation”.
A survey by advisory firm SquareWell Partners recently found that say-on-climate votes had doubled, year-on-year, but shareholder support was falling: the average was 93% in 2021, down to 86% last year.
Elsewhere, fund managers say the issue is the quality of climate plans emerging from corporates. Rebecca Lewis, co-CEO with Arisaig Partners and one of the founding members of the Net Zero Asset Managers Initiative, says: “There’s no downside to say-on-climate, or anything that improves visibility and accountability of credible climate commitments at the most senior forums, such as AGMs.
“The key word is ‘credible’—a plan must be aligned to the Paris Agreement’s goal of keeping global warming to 1.5°C and be scientifically robust. The big concern globally at the moment in relation to sustainability commitments is greenwashing, not just by companies but investors.”
The stakes are rising. At this year’s World Economic Forum conference in Davos, legal experts warned more litigation was almost certainly on the way for companies that fail to cut greenhouse gas emissions.
Sebastian Vos, chair of the public policy practice at law firm Covington & Burling, said: “I expect to see an increase [in litigation], especially in Europe.” He added that new reporting rules coming from Brussels would make companies more transparent about their emissions. “And that opens companies up to the risk of more litigation,” Vos said.
Pressure is mounting over ESG. It’s on investors and companies alike. It remains clear some of the details are still to be worked out.