Growing Investor Focus on Climate in US 2021 Proxy Season

New ISS report reveals that the number of climate-related shareholder resolutions in the US proxy voting season soared this year.

Directors at listed corporates have been warned that they will be increasingly held accountable by investors for failing to mitigate climate risks in their businesses.

A new Institutional Shareholder Services (ISS) report – 2021 US Proxy Season Climate-Related Voting Trends: Proxy Voting in the Anthropocene – revealed that the recent season has seen a marked escalation of shareholder engagement on climate-related issues.

This included a “high-profile proxy contest” at oil giant ExxonMobil initiated by Engine No.1, targeting specific directors for reasons at least partially motivated by climate-related concerns.

Although other efforts to unseat directors at firms seen as failing to respond to climate risks were less successful, overall voting patterns suggest strengthening shareholder support for increased reporting and target-setting on carbon emissions and net zero pathways.

Holding directors accountable

A total of 19 climate-related vote-no campaigns were pursued at companies in the electricity generation, oil and gas, and banking sectors. The vote-no campaigns were all run by Majority Action, “a non-profit, non-partisan organisation that empowers shareholders to hold corporations accountable to high standards of corporate governance and long-term value creation”.

The organisation argues that votes are warranted against directors at companies for failing to implement plans consistent with limiting global warming to 1.5 degrees Celsius.

“While widely publicised, the vote-no campaigns did not have an overall significant impact on vote outcomes of director elections targeted by the campaign versus those that were not,” the report stated.

“However, the outcome of the Exxon proxy contest suggests that seeking to hold companies and specific directors accountable for perceived failures of climate-related risk management could be a tactic used again in the future.”

Focus on Paris alignment

In total, according to the ISS, there were 84 climate-related shareholder proposals filed during the US 2021 proxy voting season. That is above the 77 filed in 2020 and 66 in 2019 but still below 95 in 2018.

The vast majority of filed shareholder proposals focused on the reporting on or achievement of targets aligned with Paris Agreement goals followed by motions focused on other aspects of emissions and disclosure. There was also a rise in proposals relating to firms’ climate-related lobbying activities.

ISS said that many shareholders have a strong focus on reporting and targets aligned with net zero greenhouse gas emissions by 2050 – consistent with a 1.5-degree scenario and 2 degrees pathways, thresholds set by the scientific community as critical to preventing large scale and severe impacts of climate change.

The 2021 season also saw the advent of the Say-On-Climate proposal – an attempt to secure a dedicated ballot item that would enable investors to express views on a company’s management of climate-related risks on a recurring basis.

Rising shareholder support

In addition to an increase in the overall number of shareholder proposals and initiatives targeting additional ballot items, the levels of support for climate-related shareholder proposals continued to increase. Median support of such proposals hit 48.9% during 2021 season, up from 37.6% in the previous year.

This continued increase in the level of support for a variety of climate-related proposals, ISS argued, signals a high level of engagement from many shareholders on this topic.

Of the 86 climate-related shareholder proposals filed in 2021, 23 made it to a vote. Almost half of the voted proposals received majority support from shareholders.

The low number of proposals making it to a vote indicates, the ISS added, that companies and boards are sensitive to this issue and willing to engage with shareholders on a resolution.

“The 2021 US proxy voting season marked an an expansion of investor voting approaches,” said Georgina Marshall, Global Head of Research at ISS.

She added that the days of regarding climate disclosures and risk as “non-financial” niche issues targeted by a relatively small number of activists and NGOs are over.

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