Different tactics required across region for institutional investors looking to hold corporates to account on net zero strategies.
Regulatory change is offering new opportunities for Asia-based investors to scrutinise the climate commitments and performance of investee corporates, but their ability to place shareholder resolutions varies widely.
New guidance offers support to institutional investors’ climate-related engagement efforts in the region, identifying stewardship opportunities and limitations across 11 jurisdictions where climate-related resolutions can be proposed.
“Investors have called for increased engagement with Asian corporates on the adoption of net zero transition strategies,” said Rebecca Mikula-Wright, CEO of Asia Investor Group on Climate Change (AIGCC).
“Asian regulators are progressively encouraging the adoption and disclosure of Paris Agreement-aligned transition strategies, alongside a heightened focus on effective corporate engagement.”
The report has been published by environmental law firm ClientEarth and AIGCC, providing specific guidelines on climate-focused shareholder resolutions in Japan, South Korea, India, Hong Kong, Malaysia, Singapore, Indonesia, Thailand, Vietnam, the Philippines, and the People’s Republic of China.
A complex regulatory environment and a traditionally more restrained approach to shareholder influence on company management has previously limited filing and support of climate resolutions in Asia. But this is beginning to change in light of shifting policy and regulatory priorities toward establishing net zero pathways for corporates, and a growing focus on climate-related risks and opportunities by institutional investors in the region.
Prior research by AIGCC noted that net zero commitments have been on the increase among Asian investors, with 40% of survey respondents committing to net zero in 2022, compared with none the previous year.
Explicit encouragement to investors to hold firms to account include Japan’s revised Corporate Governance Code and its 2021 Guidelines for Investor and Company Engagement, which support increased mid-to long-term corporate value and engagement between investors and companies.
Sharp rise in resolutions
The report noted that common asks in shareholder climate resolutions filed during the most recent AGM season include calls for increased climate-related transparency and disclosure, net zero commitments, Paris-aligned transition plans with short- and long-term goals, aligned future capital investments with decarbonisation targets, and disclosures on climate and energy policy lobbying.
Japan in particular has seen a sharp rise in shareholder climate resolutions, according to the report. In 2022, an institutional investor group with a combined US$3 trillion in AUM co-filed shareholder climate resolutions at J-Power, the country’s largest coal power operator, calling for a Paris-aligned business plan, targets and annual reporting. It received 25.8% in shareholder support.
Common themes across legal experts’ guidance in the report included a recommendation that shareholders identify to whether a proposed shareholder climate resolution “falls within the types of matters that they can ordinarily bring resolutions on”.
The extent to which shareholders have a say on company policy varies widely across Asia, the report said, noting that shareholders in Malaysia have a “broad ability to bring resolutions on a wide range of matters” and climate resolutions are not precluded. In China, shareholders can also file resolutions and vote on issues relating to business policies and investment plans, but shareholder climate resolutions “would not normally fall within the prescribed matters on which shareholders can file a resolution” in India.
If a climate resolution should be framed as an amendment to the charter documents of a company, shareholders need to be mindful of how to make such amendments, the report said. Such amendments may be necessary in jurisdictions where a shareholder climate resolution is not within the prescribed themes shareholders are allowed to file on. In Japan, for example, articles of incorporation should be amended to contain “the climate ‘ask’ itself”, the report said.
It may also be necessary for investors to check whether it is more appropriate to file a climate-focused shareholder resolution at an upcoming AGM or a separate shareholders’ meeting, as this also varies according to the jurisdiction, the report added. The majority of the 11 assessed jurisdictions allow for shareholder climate resolutions to be tabled at AGMs, but in some, including India, the report recommends that shareholders call an extraordinary general meeting (EGM).
The AIGCC said the report is intended to complement Climate Action 100+’s Investor Guide for Engaging in Asia, which was updated this year.