Wind of Change Forcing US Firms to Accede to Investors on Climate

Corporates are recognising the importance of decarbonisation targets and climate-related transparency, according to Ceres research. 

A growing appreciation of the scale and urgency of the climate crisis is leading US-based companies to take greater account of investor concerns, resulting in an increased number of withdrawn shareholder resolutions.  

“We are seeing a mainstreaming of corporate understanding of the need for transparency of climate risks and solutions, due to the increase in climate change-induced disasters and investor appetite for climate solutions,” Rob Berridge, Senior Director of Shareholder Engagement at US investor network at Ceres, told ESG Investor.  

Research by Ceres noted that 110 climate-related commitments were made by US companies during the 2022 AGM season in exchange for shareholder resolution withdrawals. These commitments include setting science-based decarbonisation targets and reporting on how their climate-related lobbying aligns with the Paris Agreement goal of limiting global warming to 1.5°C. 

“It’s clear that shareholder proponents came into this proxy season with the wind at their backs,” said Heidi Walsh, Executive Director at the Sustainable Investments Institute. “The number of withdrawals is tracking proportionally with the number filed – and, because so many were filed, there are a lot more withdrawals.” 

The US 2022 proxy season saw 924 shareholder proposals filed compared to 733 the year before. In July, Proxy Preview published highlights from the 2022 proxy season so far, noting 282 ESG-related votes – 34 of which secured majorities. This included a 51% majority for a shareholder resolution at oil and gas major ExxonMobil calling for a formally audited climate plan, as well as majority votes at insurance firms Chubb (72.2%) and Travelers (55.8%) for reporting on fossil fuel project underwriting. 

Of the climate resolutions that were withdrawn, companies agreed to report on how their climate lobbying aligns with the Paris Agreement in 17 instances, Ceres said. The firms included Boston Trust Walden Company and JP Morgan Chase.  

Electric power and natural gas holding company Duke Energy Corporation also agreed to include Scope 3 emissions in its commitment to reach net zero by 2050.  

Following negotiations with the New York City Office of the Comptroller, Virginia-based power and energy firm Dominion Energy committed to disclose detailed information about planned capital expenditures to enable shareholders to better assess the company’s progress on realising its net zero goals.  

The Comptroller is the custodian of the assets of five New York City public pension funds, including the New York City Employees’ Retirement System and the New York City Board of Education Retirement System. 

“The increased number of withdrawals and negotiated agreements is indicative of the increased sophistication of investors’ active engagement efforts with investee companies,” Berridge said.  

Peaks and troughs 

Alongside the withdrawals and agreements, investor support for climate-related shareholder proposals that went to vote decreased this year “under a cloud of global uncertainty and economic turbulence”, Ceres said. A reluctance by asset managers to ‘micromanage’ investee firms on climate has also been cited as a factor. Climate-related proposal secured an average 31.6% in investor support during the 2022 AGM season, down from 42% in 2021.  

“We really see this as short-term pressure,” said Berridge. “Investor pressure on companies to reduce their carbon emissions is a long-term trend.” 

Next AGM season will likely see a further increase in more ambitious climate shareholder resolutions beyond disclosure-related requests, according to As You Sow CEO Andrew Behar.  

Once the US Securities and Exchange Commission climate disclosure framework is in force, the number of resolutions asking for companies to reporting on their emissions and target-setting is likely to drop, “because companies are going to already be disclosing”, he said. 

“The questions investors are now going to ask include: Now that we know what your emissions reduction targets are, how are you going to actively reduce your emissions by 5% a year for the next ten years? I’m hopeful that next season will be all about implementation as opposed to just disclosure.” 

Growing incentives 

US policymakers and regulators are increasingly championing efforts to identify, measure and mitigate the effects of climate change, which is further encouraging companies to implement climate-related policies and targets, publicly disclosing their progress.  

Earlier this month, President Joe Biden signed the Inflation Reduction Act (IRA) into law, which includes US$379 billion in investment to reduce domestic carbon emissions and upscale national renewable energy sources.  

Rule changes are also reshaping the landscape for making and voting for shareholder resolutions In July, the US SEC amended rules published under the Trump administration which required proxy advisory firms to provide companies with the information that contributed to their voting recommendations to shareholders prior to the voting taking place. 

The SEC has rescinded two elements of the 2020 rules: the requirement that company management is allowed to respond to proxy advice before it has been issued to shareholders, and the reversal of 2020 changes which the US SEC noted generated confusion around proxy rules’ liability provision. 

However, “the conflict-of-interest disclosure remains”, noted James Thomas, Partner at law firm Ropes and Gray. 

“It’s hard to know whether the 2020 or the 2022 amendments strike the right balance between companies and proxy advisors but, given how important proxy advice can be in deciding proposal outcomes, I think people on both sides of the argument should want a process of some sort to allow errors in methodology or data to be corrected,” he said. 

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