Shareholder resolutions reflect investor focus on GHG emissions reductions.
Climate risks and disclosures will be the key source of tension between asset owners and investee companies during the 2022 AGM season, according to UK and US-based non-profits focused on responsible investing.
A record 110 climate-related resolutions have been proposed by shareholders of US firms, making it the most common topic among a record 529 ESG proposals – 20% more than were filed in 2021 – said an analysis by shareholder advocacy group As You Sow, the Sustainable Investments Institute and Proxy Impact.
Separately, UK-based ShareAction listed seven climate-related resolutions among 18 resolutions which “should be a priority for investors in the 2022 proxy voting season”. The charity said asset managers should not only vote in favour of all the resolutions, but also publicly pre-declare their voting intention and “publish a rationale for any deviations in voting outcomes”.
Overall, 21% of this year’s US shareholder resolutions focus directly on climate change, with 19% concerning corporate political influence, 15% on human rights and 12% on decent work. This is the first time in over a decade that climate change has overtaken political influence as the primary ESG concern of US shareholders. Further, 20 of the political influence resolutions are focused on climate-related lobbying.
Voting support for both ESG and climate resolutions is also increasing. A record 39 AGM votes on ESG resolutions achieved majorities last year, with average support for climate proposals exceeding 50% for the first time. Already this year, investors gave 70% backing to a resolution calling for Costco Wholesale to set goals for achieving net zero greenhouse gas (GHG) emissions.
The As You Sow analysis suggests investors are becoming more detailed in their expectations of firms’ GHG emissions disclosures and net zero strategies, noting that “this year specificity is back in spades”. As well as requests for firms to set net zero goals and outline transition plans, many proposals ask for firms to provide details of Scope 3 emissions along their value chains.
The US Securities and Exchange Commission’s (SEC) plans to mandate climate disclosures, expected to be revealed next week, have been delayed several times, partly due to entrenched opposing positions being taken by corporates and investors on compulsory Scope 3 emissions disclosures.
One of the seven key resolutions flagged by ShareAction, co-filed by Trillium Asset Management, calls for United Parcel Service (UPS) to set science-based GHG emissions reduction targets to achieve net zero emissions by 2050 or sooner. The resolution, due to be voted on in May, notes a lack of clarity on how UPS intends to meet its net zero goals and a failure to include Scope 3 emissions.
ShareAction urged asset owners to use the list of priority votes as a guide to the commitment of their asset managers to publicly challenging directors on sustainability issues as part of their engagement efforts. Its analysis of asset managers’ voting performance in the 2021 proxy voting season found that the six largest asset managers supported less than 40% of environmental and social resolutions they voted on.
ShareAction also recommended a series of expectations that should guide asset managers’ voting practices and decisions on ESG issues at upcoming AGMs. As well as setting “public and ambitious” expectations for investee firms with explicit voting consequences, the non-profit said asset managers should promote voting standards within ESG-related investor coalitions, offer clients a range of voting services and provide transparency on all aspects of the voting process.
Only a minority of shareholder resolutions complete the journey to a vote at the company AGM, with many being withdrawn due to negotiations following their initial filing. Especially in the US, some are omitted if challenged by the company under securities regulation.
Earlier this week, ShareAction withdrew a co-filed resolution after HSBC agreed to phase down financing of fossil fuels in line with limiting global temperature rise to 1.5C and to update the scope of its oil, gas and thermal coal policies by the end of 2022.
At present, more than 100 of this year’s resolutions are subject to challenges by US corporates, but it is expected that fewer will by omitted by SEC staff than last season. In November, the SEC rescinded three bulletins released under the Trump administration expanding the prohibition of shareholder micromanagement, which had limited US shareholders’ ability to file social and environmental resolutions.
Yesterday, Occidental Petroleum failed in a bid to throw out a resolution calling for it to set short, medium and long-term decarbonisation goals.