By Kira Ciccarelli, lead research specialist, Diligent Institute
Climate change as a looming threat Over the course of the last few years, the importance of climate change action has grown exponentially. Natural disasters in the US and across the rest of the world have increased in frequency, duration and intensity. The decade 2011-2020 was the warmest in recorded history and ocean levels could rise by as much as eight feet by the year 2100.
In August 2021 the UN Intergovernmental Panel on Climate Change issued a stinging update to its reporting, detailing that human action ‘unequivocally’ contributes to climate change.
In light of these developments, investors sent a clear message that ESG, particularly issues of sustainability and climate change, were high priorities in this year’s proxy season. This year saw the highest number of ESG proposals voted into place on record. ISS supported 64 percent of climate-related proposals this year.
From July 1, 2020 to March 31, 2021, BlackRock supported 62.5 percent of climate-related and social proposals; from July 1, 2019 to June 30, 2020, it backed just 6 percent of climate-related proposals and 7 percent of social proposals. It also voted against 255 directors based on climate issues. A recent Diligent Institute report on shareholder activism aligns with these developments. As governments, investors and regulators attempt to slow the tide and work toward a more sustainable future, how have companies responded?
Are corporate statements on the climate crisis translating into action? The Diligent Institute set out to gain a better understanding of how environmental proposals and corresponding shareholder approval have trended over time. Using Diligent’s Compensation and Governance Intel (Diligent CGI), we analyzed environmental resolutions put forward at 5,062 companies in the US, Canada, the UK, France and Australia, along with their levels of shareholder support from January 1, 2016 to August 31, 2021.
We selected this timeframe to review what happened after the Paris Climate Agreement went into effect in 2016 through to the present. The analysis below contains breakdowns by year, country and sector, with a spotlight on the energy and healthcare sectors.
Our key findings include:
2019: The turning point on climate-related shareholder proposals In November 2016 when the Paris Climate Agreement took effect, we saw the highest number of proposals at 68 with 33.2 percent support on average. The chart (right) displays the number of climate-related proposals put forward at all firms in our sample since the beginning of 2016.
Interestingly, the number of climate-related proposals declined from 2016 to 2019, but then began to rise annually. Despite there being fewer climate-related proposals, the level of shareholder support for the proposals jumped from 28.2 percent in 2019 to 50.8 percent in 2021, a record high level of support.
US companies have more climate-related proposals but less shareholder support than other countries The US clearly outpaces the other countries included in our analysis. Since 2016 the US companies have had 203 climate-related proposals, the UK 20, France 15, Canada 14 and Australia seven. The chart (right) shows the total number of climate-related proposals filed at companies in each country since 2016, as well as the average shareholder approval for those proposals for each country over that span.
But the US lags other countries when it comes to average shareholder approval, at only 29.9 percent compared with 71 percent in the UK and 94.2 percent in France. Although the US lags the other countries in this sample in terms of shareholder approval of climate-related proposals, the average level of support is rising in the US year on year, increasing from 24.6 percent in 2016 to 39.1 percent in 2021, with the majority of that jump occurring between 2019 and 2021.
By comparison, in the UK, shareholder approval of climate-related proposals decreased sharply from 2016 to 2018, rebounded in 2019 and has since fallen again, albeit at a slower rate. Between 2016 and 2018, shareholder approval of climate-related proposals shot down from 98.7 percent to 18 percent. In 2019 approval rose significantly to 69.2 percent before decreasing to 66.5 percent in 2021. The chart (left) shows the average percentage of shareholder approval of climate-related proposals from 2016 to 2021 for each country.
In the US specifically, as average shareholder approval has risen since 2016, the number of climate-related proposals has actually gone down. In 2016 there were 58 climate-related proposals from the US companies in our sample – this fell to 25 in 2021. The chart (right) shows the number of climate-related proposals each year from 2016 to 2021 and the corresponding average shareholder approval rate for each year in the US.
Energy sector leads the way in climate-related proposals and shareholder approval Unsurprisingly, the energy sector received the greatest number of climate-related proposals over the last five years, as well as the greatest level of shareholder support. The energy sector companies in our sample have faced 61 climate-related proposals since 2016, with shareholder approval rates at 40.6 percent on average over that span.
Meanwhile, the industrials sector is close behind, with 44 climate-related proposals and an average shareholder approval of 40.6 percent. In third place is the consumer discretionary sector, with 35 climate-related proposals and an average shareholder approval rate of 31.6 percent.
At the bottom of the pack are information technology with nine proposals and an approval rate of 29.8 percent, and healthcare with 12 proposals and an approval rate of 38.5 percent. The chart below shows the total number of climate-related proposals since 2016 in each sector in our sample and the average level of approval in each sector across the same time span.
Climate-related proposals are rare and tend to receive less support Despite the fact that climate-related proposals and shareholder approval of environmental items have been on the rise since 2019, they account for only a tiny fraction of all resolution items. Globally in 2021, climate-related proposals made up just 0.11 percent of all proposal items. Additionally, climate-related proposals receive a lower overall level of support – 50.8 percent support, on average – compared with other proposals, which receive 93.7 percent support, on average.
In the US these numbers are even starker. While climate-related proposals make up a similar proportion of all proposals since 2016 (0.14 percent), in the US these proposals receive only 29.9 percent support on average, compared with other proposals that receive an approval rate of 90.6 percent.
In France and the UK, shareholder approval numbers approach the overall average. Though climate-related proposals make up just 0.04 percent and 0.09 percent of all proposals in the UK and France, respectively, UK environmental proposals receive 71 percent support compared with an overall average of 97.7 percent, and French environmental proposals receive slightly higher support than the average, at 94.2 percent compared with 94 percent.
Two essential steps for corporate secretaries Although climate-related proposals make up only a small proportion of all proposals, shareholder support for them is clearly on the rise, and the drumbeat for companies to up their game on climate issues will only continue to grow louder in the coming years. Knowing this, what can you do to ensure your board is prepared?
The first step is understanding where your organization is on its ESG journey. This plan will look different for each organization based on size, location, industry and more.
ESG goals, particularly around climate and sustainability, should be measurable, achievable, applicable and communicated throughout the company. As a corporate secretary, transparency around the current status of climate-related goals and which actors at the organization lead ESG efforts can inform the rest of your approach.
Once you have transparency into ESG practices at the firm, the next step is active shareholder engagement. This involves ensuring the appropriate actors are able to communicate progress, trends and other important updates to the board when necessary.
Especially given the focus investors are placing on climate-related issues and rising support levels for climate-related proposals, the board needs to be adequately informed in order to manage these pressures. Putting the right tools, processes and meeting protocols in place so that the board can get all the information it needs is essential for progress on environmental strategy.
