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Say-on-Climate: Engagement Opportunity or Box-ticking Exercise?

While the volume of climate-related shareholder proposals continues to rise, too many are lacking in clarity and ambition, argues Julia Wittenburg, Head of Active Ownership at J. Safra Sarasin.

In Europe alone, the number of say-on-climate votes have more than tripled over the last two AGM seasons, asking shareholders to greenlight the climate plans of companies. This trend is expected to continue, as more companies seek to put out plans to tackle climate change.  

What are say-on-climate proposals?  

Climate-related proposals have appeared on annual general meetings (AGMs) agendas for quite a number of years, mostly when submitted by shareholders asking carbon-intensive companies to better manage their emissions, for instance by setting GHG emissions reduction targets. What we have seen in the last two years is different, as the increase is coming from management-submitted proposals that are requesting shareholders to support the company’s climate strategy, or the so-called ‘say-on-climate’. 

Mandatory climate-related financial disclosures have been on the rise in many markets, often under the introduction of the Taskforce for Climate-Related Financial Disclosures (TCFD) reporting framework, as has been the case in Switzerland. Also, investor organisations, such as the Net Zero Asset Managers (NZAM) initiative, which J. Safra Sarasin is also a member of, have pushed climate to the forefront of investors’ ESG agendas. Corporates have responded to investors, but also to increasing transparency demands from other stakeholders by voluntarily submitting their approach to climate as a non-binding vote at their AGM.  

Proxy advisors’ role 

The two most influential proxy advisors, Institutional Shareholder Services (ISS) and Glass Lewis, evaluate these proposals quite differently. ISS supported nearly 95% of the say-on-climates that were submitted in European markets in 2022. In contrast, Glass Lewis had recommended to oppose or abstain on over 40% of all proposals. One of the key differentiators in vote recommendations between the two, is the belief that corporate boards should retain ultimate responsibility over a company’s climate strategy instead of delegating the final say on the matter to shareholders. 

For both proxy advisors the tendency is to become more critical towards say-on-climate votes, indicating some of the complexity required to analyse these proposals, whether in terms of transparent carbon emissions disclosure, long-term commitment or credible target setting. Say-on-climate is still in its early days, and opinions on it are divisive. While proponents believe it will improve carbon disclosures and drive shareholder engagement, there are those that view it with more scepticism. Vanguard, for example, has expressed caution about the value of say-on-climate, and are “concerned about the potential implications and unintended consequences for governance and accountability”. 

Positives of proposals 

A say-on-climate raises climate awareness all the way up to the shareholder meeting by giving shareholders the opportunity to express their views on a company’s proposed climate transition plan.  

From a corporate point of view, this is significant as the company is voluntarily seeking shareholders’ buy-in on how to set and implement its climate strategy, even though this vote is not legally binding. In Europe, we’re also bringing the E into the AGM context, which is a positive. 

Greenwashing fears 

The vote is only advisory in nature and sometimes the proposals lack clarity or ambition. For instance, they tend to be vague about the execution of their strategy over the long-term. Therefore, we certainly want to be mindful of greenwashing.  

Currently, there is also no legal framework in place that leads to consequences in the event that the company fails to reach majority support for a say-on-climate. And so far, we have not seen companies re-submitting proposals for shareholder voting in consecutive years. This has been a one-off event. Moreover, there is a perceived risk that the company is shifting the responsibility regarding climate transition strategies to shareholders. 

Addressing concerns 

Raising awareness over climate, setting a strategy, giving shareholders a voice on the topic, and increasing overall transparency, are all positive developments in my view, as this raises accountability towards shareholders.  

Often however, the devil is in the detail.  

As important as a climate strategy is, successful execution of that strategy over time is key. For this, we want to see milestones addressed, short- and medium-term goals and targets disclosed, etc. We want to see more than an overall carbon emissions reduction target way out in the future. 

Having said that, we are also at the beginning of a journey, therefore punishing companies who are early adopters of a say-on-climate is counterproductive. Instead, staying engaged and monitoring developments over time will be a more constructive tool to ensure that we reach a more positive outcome for everyone. 

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