'Votes have jumped dramatically': Why investors are pressing companies to accelerate climate action
The 2021 AGM season saw a flurry of climate-related shareholder resolutions being filed - and passed - at the world's biggest banks and fossil fuel majors. Here, edie interviews the architects of these resolutions to get an inside look at their development and growing success.
The last week of May was quickly branded a ‘week of reckoning’ for the fossil fuel sector. After a groundbreaking ruling from the Hague District Court, in which Royal Dutch Shell was ordered to raise its climate targets, shareholder votes saw two climate activists added to ExxonMobil’s board and urged Chevron to update its strategy in line with the Paris Agreement on climate change.
These votes related to just two of dozens of motions to have been filed at high-emitting corporates for the 2021 AGM season. Firms including CAT, Monster Beverage, Twitter, DTE Energy and General Electric – the latter of which saw 98% of the vote going in favour of greater climate disclosures in line with a ‘net-zero indicator’ – have all made headlines this quarter.
Speaking exclusively to edie, representatives from ShareAction and As You Sow, which create shareholder sustainability resolutions in Europe and the US respectively, argue that it is not simply a case of more media coverage due to increased public awareness of the climate crisis – resolutions being filed are generally receiving higher levels of support year-on-year. Quantitative research has already proven this to be true for 2020.
As You Sow’s chief counsel and president Danielle Fugere tells of how “even five years ago, it was good to get a 30% vote on an environmental topic”, but that support now regularly surpasses the 60% mark.
ShareAction’s senior campaign manager Jeanne Martin points to several possible drivers of this trend. She tells edie: “I would say that there is increased scrutiny of how investors use their voting rights to drive corporate change; there are several analyses being published every year now, looking at how the top asset managers are voting on key climate change and social resolutions.
“And scrutiny does not just come from outside, it also comes from asset owners themselves who are increasingly asking their managers to adopt a ‘comply or explain’ approach to major resolutions.”
Drivers of this scrutiny are clear; the UK and EU both have long-term net-zero targets and are shaping new legal requirements for the private sector in the short and mid-term. The general public are becoming more aware of climate change, whether through media coverage, social media, improved education or experiencing adverse effects fist-hand. New research and tools are helping businesses and other organisations to quantify and reduce climate risk, enabling them to move beyond the argument that risks will crystalise in ways that will not affect them for decades.
Martin believes that this environment compels investors not only to vote with climate in mind, but to be bold enough to file resolutions in the first instance. Some of the investors behind a resolution compelling HSBC to stop financing coal globally by 2040 had never taken part in such an action before. Collectively, the firms to have filed the resolution represented $2.4trn of assets.
Getting investors to make that step from voting to filing is, Martin argues, a “really powerful signal” – as is getting votes to pass at banks, as this sends a message to the rest of the economy: transition or we could stop investing.
Banking on disclosure and action
Both As You Sow and ShareAction have been increasing their work with banks in recent times, which is, perhaps, to be expected. There is growing recognition of the fact that the average bank’s financed emissions are 700 times higher than those relating to direct operations and of the fact that huge amounts of capital will need to be moved to deliver a net-zero economy.
Banks engaged by ShareAction this AGM season include Deutsche Bank, Credit Suisse and Barclays, as well as HSBC, while As You Sow works with the likes of Citigroup, JP Morgan Chase, Wells Fargo and Morgan Stanley. In anticipation of a 2050 net-zero target being legislated by Joe Biden, the US’s largest banks now have net-zero targets, seemingly marking a step-change in approach.
For Martin, resolutions at European banks seem to be shifting from covering “disclosure-oriented” topics to “action-oriented” ones. She says: “If anything, the climate crisis is nothing but intensifying. I suspect there is a feeling of increased urgency…. at least in Europe. There is a recognition here that just asking for disclosures is not good enough anymore; credible transition plans are also needed.”
In the case of HSBC, the bank actually recommended that investors support the ShareAction resolution ahead of its AGM and, on the day, chairman Mark Tucker said: “With COP26 under six months away, now more than ever, the world is looking to the financial sector to step up and play its part… HSBC [is] a founding member of the Net Zero Banking Alliance – a group of 43 banks from 23 countries which will bring collaboration and consistency to collective efforts to reach the Paris Agreement goals. And I’m committed to helping the whole system to embrace the urgency of the low-carbon transition.”
For Fugere, the movement is less advanced in the US, with many corporates still being pressed for disclosures that are either mandated or commonly made on a voluntary basis elsewhere. But, with the US having signed a G7 commitment to mandate climate risk reporting, and with supporting policy packages for net-zero in the works, she maintains that, soon, “capital will become scarce for companies that are failing to transition adequately – as it should”. When this happens, with action across the board in the private sector and adequate policy support, will the financial system “build in a bias” towards low-carbon sectors and technologies.
Supporters and laggards
A word of caution, though – while shareholder resolutions passed in the UK and EU are legally binding, in the US, they are purely advisory.
Moreover, not all climate-related resolutions are passing, and at some firms, support is dropping. Barclays springs to mind. Last year, 24% of shareholders backed a resolution designed to bring about divestment from fossil fuels. That proportion dropped to 14% for 2021.
“The investment community is definitely not a homogenous body and there are definitely still many investors that remain focused on disclosure only,” Martin explains. “There is a wide gap between the managers which voted for more than 80% of the motions on our list and those that did not vote for more than 20%.” In other words, investors that vote against climate resolutions are likely to also vote against resolutions relating to other environmental, social and governance (ESG) topics, be it plastic pollution or diversity and inclusion.
But, even in cases where laggards outnumber leaders at the voting table, Fugere and Martin have seen first-hand that change is still possible. Fugere said: “You can have a 99% vote and it will not compel the company, legally, to take action. But, at the same time, votes with a small proportion of the vote can still generate movement… boards are not always well-informed about what’s happening in their market.”
She tells of how Abbot Laboratories launched its first GMO-free infant formula last decade, even after an As You Sow motion was filed three times, securing less than 10% support each time, and has since launched other GMO-free lines. Fugere believes pressure from consumers was also a factor.
“We’ve seen a lot of resolutions with 5-10% support ultimately convincing the company to act…. Businesses don’t want people to think they are not open to change or a leader in the field covered,” Martin adds. And, surely, this same desire not to lose face would compel US-based businesses to hear the message loud and clear from resolutions with 60%+ of the vote.