A campaign started by a British hedge fund plans to target hundreds of companies in the next two years. Tim Human reports
Inspired by say-on-pay voting, a British activist hedge fund is calling on companies to publish a climate transition plan and give shareholders a vote on the contents. The Children’s Investment Fund (TCI), headed by billionaire investor Sir Christopher Hohn, wants hundreds of companies to hold say-on-climate votes within the next two years.
So far, only a handful of companies have embraced the idea, but they include major names such as Unilever, Rio Tinto and Royal Dutch Shell. The project is encouraging companies to sign up voluntarily, but will use shareholder resolutions where necessary to try to force change.
Indeed, a growing number of resolutions have already been submitted. The action is being co-ordinated by the Children’s Investment Fund Foundation (CIFF), an organization co-founded by Hohn, with support from a range of partners.
‘CIFF is working with a group of NGOs, asset owners and asset managers to file hundreds of say-on-climate resolutions, starting in 2021, across the US, Canada, Japan, Europe, the UK and Australia,’ says Tom Lorber, CIFF’s senior manager for climate.
Further, faster In recent years, companies have come under increasing pressure to align their business models with the Paris Agreement climate goals, which call for global warming to be capped at 1.5°C compared with pre-industrial levels.
This has led to a growing number of firms announcing net-zero emissions pledges, where they aim to become carbon-neutral in their operations and across their value chain by 2050. For Hohn, however, the pace of change is too slow. He has frequently spoken about the need for companies to go further, faster in cutting emissions.
He has also criticized the investment community for not pushing issuers hard enough to change their ways.
To push this agenda, TCI created the say-on-climate campaign, which calls on companies to disclose carbon emissions each year, publish a ‘credible’ climate transition plan and give shareholders an annual advisory vote on the plan.
‘It’s clear... shareholders should have a vote,’ Jonathan Amouyal, partner at TCI, told IR Magazine last year. ‘[It’s the] same concept as having a say on senior executives’ compensation. Shareholders are relevant stakeholders. They should be consulted.’
The movement scored its first victory last year when Aena, the Spanish airports operator, agreed to produce a new climate strategy and hold an annual vote. TCI, Aena’s largest shareholder after the Spanish government, spent almost a year pressuring the company before it agreed to the demands.
Aena’s updated plan raises from 70 percent to 100 percent the goal for self-generated energy use by 2026. It also brings forward from 2050 to 2040 the target date for net-zero emissions at all airports. The plan will be presented for shareholder approval at the 2021 AGM and progress reports will be voted on at each subsequent meeting.
‘I would say we are… one of the first major listed companies – if not the first – in the world to decide to adopt these commitments,’ said Maurici Lucena, Aena’s chief executive and chairman, during his AGM address last October. In the speech, he also thanked Hohn for the ‘encouragement he has given us [over] these months to be even more ambitious than we were initially thinking’.
Spreading the word With a climate vote implemented at Aena, TCI rapidly expanded the scope of the campaign. In November CIFF held a webinar where it noted that say-on-climate resolutions had been filed at several North American companies and that it would seek to target hundreds of issuers globally over the coming years. Issuers receiving a resolution included Moody’s, S&P Global, Alphabet and CN.
Moody’s and CN have since adopted a say-on-climate vote. A spokesperson for S&P Global says the company is engaging with TCI. The data firm notes that it has already begun aligning its strategy to climate risks and is exploring a net-zero emissions target. An Alphabet spokesperson says the company hasn’t filed its proxy statement yet and won’t have anything to share until then.
The filings spread to Australia in February this year when the Australasian Centre for Corporate Responsibility (ACCR), an affiliate of the campaign, submitted say-on-climate resolutions with energy provider Santos and oil & gas producer Woodside Petroleum.
The resolutions call for a climate report that follows the recommendations of TCFD and Climate Action 100+, a project that encourages major emitters to announce net-zero targets, along with an annual shareholder vote on the report. While both companies have announced net-zero goals, they have not revealed a ‘concrete plan’ to reach the target, says ACCR.
In a statement, Woodside says it is assessing the resolution and would issue a response in March as part of its AGM notice of meeting.
In its own statement, Santos says it does not consider the changes ‘necessary or in the interests of shareholders’, noting that it already publishes a climate plan aligned with TCFD recommendations and ties executive pay to emissions reductions. Shareholders are ‘already able to vote on adoption of management remuneration at the AGM,’ it adds.
The say-on-climate campaign is at an emerging stage and currently focused on companies where it can have a high impact, either environmentally or because the business plays a leadership role in its sector, says Nicolette Bartlett, global director of climate change at CDP, another affiliate of the project.
‘[The campaign] is not yet at the stage of maturity where shareholders will be engaging with all companies, so there is still time to prepare,’ she points out. ‘Our best advice would be to make sure your organization is on the path, or preparing to transition your business model to one that aligns with a net-zero economy.’
At time of writing, eight companies have voluntarily pledged to support the campaign. The first to do so was Unilever, the UK-listed consumer goods giant, which is well known for putting a strong focus on sustainability issues. In December the group said it would announce a new climate plan and give shareholders an advisory vote every three years on ‘any material changes made or proposed to the plan’.
‘As investor interest in managing the transition to net-zero portfolios grows, we want to send a clear signal that Unilever is serious about its intention to meet these targets, and align our business with a 1.5°C rise limit,’ says Richard Williams, head of investor relations at Unilever.
‘We think [an advisory vote every three years] is appropriate because our climate-transition action plan, by its nature, isn’t something we would expect to change significantly on an annual basis. But we will report our progress each year in our annual report and accounts, as well as in our other climate disclosures, such as CDP.’
The other companies to sign up so far are Royal Dutch Shell, Glencore, Rio Tinto, Moody’s and CN. Just as with say-on-pay voting, companies agreeing to a say-on-climate vote are taking different approaches to resolution content and timing, explains Chris Plath, senior ESG consultant at Leaders Arena, a consultancy.
‘For example, Glencore is giving shareholders a vote on its ‘climate-related initiatives’ in April, while Rio Tinto’s vote pertains to the company’s TCFD disclosures and will be held in 2022,’ he says. ‘Moody’s vote will be this year and will cover all of TCI’s asks.’
In general, the early adopters have ‘more robust disclosures and a good story to tell on their climate strategies,’ adds Plath. ‘It remains to be seen how much leverage TCI will have to encourage such votes at large companies that have less robust plans and disclosures.’
Chris Plath, senior ESG consultant at Leaders Arena, says companies should consider the following areas when considering a say-on-climate vote:
Investor reaction The campaign’s official website – sayonclimate.org – lists 17 asset owners and managers (aside from TCI and CIFF) as supporters. They include the UK’s Local Authority Pension Fund Forum – which manages more than £300 bn ($417 bn) in assets – and Ninety One, the company formerly known as Investec Asset Management.
Support has also come from the Investor Forum, a UK investor group that works behind the scenes to bring about collective engagement with companies. In its 2020 annual review, the forum said a say-on-climate vote would be a good way to consistently hold companies to account and avoid the need for individual resolutions.
‘It would use the established and accepted mechanism of a non-binding vote, and the existing stewardship techniques of engagement and voting, to put climate at the heart of the strategic debate for all premium listed companies,’ notes the review.
Other investors have shown support for say-on-climate votes, although not without some reservations. For example, in the run-up to Aena’s AGM, BlackRock released a voting bulletin saying it supported a non-binding vote on the firm's climate plan but worried that such a measure implemented ‘in isolation’ could shift accountability from the board to investors. The asset manager noted that it would continue to vote against board directors where it perceived a problem.
During the CIFF webinar in November, Hohn responded to this, pointing out that say on climate ‘shouldn’t be seen as mutually exclusive with voting against directors. Nothing stops you voting against directors as well as the plan.’
While the largest asset managers have not yet fully backed the say-on-climate campaign, investor views are converging around the importance of a detailed climate transition strategy and the role that shareholder votes – of some kind – can play in driving change.
BlackRock’s 2021 US voting guidelines call for companies to explain how their business model aligns with the aim of net-zero emissions by 2050, while State Street Global Advisors says one of its main stewardship priorities this year will be ’the systemic risks associated with climate change’. ISS and Glass Lewis both say they will generally vote in favor of resolutions calling for more disclosure on climate risks.
The idea of a specific annual advisory vote on the climate plan, however, is yet to hit the mainstream. We ‘have to date not seen public support coming from other large investors, such as US investors,’ says Plath. ‘Broader support, including from the large passive funds, would be needed for these votes to become more widespread.’
CN Ferrovial Glencore Moody’s Rio Tinto Royal Dutch Shell Unilever VINCI
Aena
Alphabet Canadian Pacific Railway Charter Communications S&P Global Santos Union Pacific Railroad Woodside Petroleum
Information correct as at March 11, 2021
Source: sayonclimate.org
