Could 2024 be a landmark year for climate activism at corporate AGMs?

Conveners of shareholder resolutions designed to force big businesses to improve their climate-related disclosures and strategies have big plans for this AGM season. Here, edie explores what activist investors are asking for, and their likelihood of succeeding.

Could 2024 be a landmark year for climate activism at corporate AGMs?

The next spell of Annual General Meetings (AGMs) is fast approaching. Investors are increasingly using the occasion not only to ask the companies they support for clarity on their past financial performance and future growth plans, but also to press them to be more environmentally and socially responsible.

Two years ago, S&P Global recorded a record 1,026 shareholder activist campaigns on environmental, social and governance (ESG) topics. Numbers dipped slightly in 2023 but the trajectory over time has been clear.

For 2024, both ShareAction, a key convener of these resolutions in Europe, and Ceres, which plays a similar role in North America, are gearing up for record years in terms of ESG resolutions filed.

Climate-related resolutions continue to be the most common. ShareAction has included, in its list of focus topics for this year, forcing banks to dial back their support for fossil fuels and imploring chemicals companies to meaningfully align their decarbonisation plans with climate science.

Ceres, meanwhile, had tracked a record 263 climate-related resolutions by late March. The organisation’s senior director of shareholder engagement, Rob Berridge, has a clear idea of why.

He says: “Climate risk is getting worse. We’re seeing pretty scary temperature and ocean temperature records.

“Risk is up, cost is down. The business case is as strong as ever, which is contributing to why investors are filing so many proposals… As risks get more urgent, they want to see more action.”

Berridge and several members of his team work out of New York, which was last summer twice blanketed by smoke from wildfires in Canada. Losses from extreme weather events made more likely and more intense by the climate crisis were higher than average across the entire region for the whole of 2023.

Regarding the ‘cost is down’ piece, Berridge and his colleague Kirsten Spalding noted the key role played by the US’s Inflation Reduction Act (IRA), which has set aside billions of dollars for tax breaks and grant funding for fast-growing industries that will support decarbonisation, such as electric vehicles and heat pumps.

Specific asks

Ask any company lagging on sustainability to simply improve its climate plans, and the result is likely to be a vague and underwhelming commitment that serves simply to tick a box. Investors filing resolutions need to be clear on what they want.

Spalding said resolutions are “getting sharper” as “investors really tailor their proposals to the specifics of what companies have and have not disclosed” amid an ever-evolving backdrop of voluntary and mandatory disclosure frameworks.

For example, fast food chain Jack in the Box was asked to disclose its Scope 1 (direct) and 2 (power-related) emissions and to set short, medium and long-term targets to reduce them. The resolution passed with more than 56% of the vote, partly because many other businesses in this sector are already providing this level of climate-related information or more. Investors argued that Jack in the Box should prove that its environmental efforts are not “sporadic and limited” to minimise future risks to competitiveness.

Most companies are a little more advanced in their climate disclosures than Jack’s. Ceres’s database shows that common requests for investors to these firms include setting science-based targets and producing comprehensive transition plans that also embed Just Transition pledges to benefit workers and communities.

On the just transition piece, Spalding and Berridge believe this kind of language and the focus on the intersection is becoming more commonplace in North America due to the IRA’s focus on funding for underserved communities. 70% of a $20bn tranche of IRA funding announced last week was specifically set aside for low-income and otherwise disadvantaged communities.

As is the case with climate risk, there is also the fact that the just transition is becoming more tangible to investors due to real-world changes on their doorsteps. The World Benchmarking Alliance has previously warned that more than 11 million workers in the oil and gas, electric utilities and auto manufacturing sectors risk unemployment due to poor transition planning by big businesses.

Less common at this moment in time, the Ceres team notes, are resolutions on topics including biodiversity and climate-linked water risks in supply chains.

A vote of confidence?

While more and more climate-related resolutions are being filed, this is not necessarily an indication that they will pass.

In the EU and UK, such resolutions become binding if they pass by a majority vote. In North America, the passing of a resolution involves no mandate but rather acts as a voluntary (and cursory) indication for businesses.

ShareAction has recorded a dip in investor support for ESG-related resolutions in recent years. A third of those it assessed in 2021 passed, which fell to one-fifth in 2022 and a paltry 3% in 2021.

This is partly due to some investors wanting to be seen to take a step back from ESG due to its politicisation in the USA, and others cautious of adding more burdens to businesses at an economically challenging time.

Ceres’s Berridge does not expect there to be a major change in the hearts and minds of big investors this year with both of these factors remaining thorny.

But Spalding says that, even if resolutions do not pass, “good management” does recognise them in the main.

She explains: “It’s the signalling that’s important. Anything within, or close to a double-digit vote, should be of significance to the business.”

And Ceres’s data does offer another bright spot of hope – many resolutions are being settled before even going to a vote, with businesses quietly agreeing to adopt them. This has been the case for around one in five climate-related resolutions in North America in 2024 so far.

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