‘Say on climate’ woes

Originally published on Insightia One’s Voting platform.

In the 18 months since the “say on climate” campaign’s founding, the global initiative has received a mixed reception from investors.

First established by The Children’s Investment Fund Foundation (CIFF), which sought a platform for investors to weigh in on corporate decarbonization strategies, “say on climate” refers to annual advisory votes on whether to approve or reject a company’s plan to transition to net-zero by 2050.

Investor concerns about the campaign, including reduced director accountability and a heightened risk of greenwashing, have increased as support for the plans has been high.

The 21 management “say on climate” plans subjected to a vote in 2021 won 96% average support, despite claims that the vast majority of plans were misaligned with Paris Agreement goals.

“This was definitely a concerning start for the ‘say on climate’ mechanism,” Harriet Kater, climate lead, Australia, at the Australian Center for Corporate Responsibility (ACCR), told Insightia in an interview.

Proxy adviser Glass Lewis shared with Insightia Monthly in March that its fears about the campaign have been “fully realized”, with some “objectively bad climate plans winning upwards of 90%+ support.”

Russia’s invasion of Ukraine also hasn’t helped matters. Both companies and investors, especially in the energy sector, have this year been forced to question the feasibility of their short- and medium-term climate commitments amid the global energy shortage.

But although support has dropped in the first five months of 2022, with the 25 management “say on climate” plans subjected to a vote winning 89.8% support on average, many in the investment world are downbeat on the impact of the campaign.

Trials and tribulations

One of the key issues with the “say on climate” campaign is the lack of standardization surrounding climate plans, which may vary dramatically in terms of content and structure. As a result, investors have been vocal about the need for consistency and comparability to aid their analysis.

“There is a very healthy debate in the broader industry of whether a ‘say on climate’ plan should be perfect, or should it be a step in the right direction towards a perfect plan?” said John Hoeppner, head of U.S. stewardship and sustainable investing at Legal & General Investment Management (LGIM), in an interview. “How you evaluate that is a really difficult question.”

In light of these concerns, investors are also divided as to whether it is worth holding the votes. In May, a Vanguard whitepaper revealed that the fund manager “does not proactively encourage companies to hold a ‘say on climate’ vote, given the lack of established standards or widely accepted market norms that govern these votes.”

A mixed reception

While more and more companies are pushing ahead of their peers by disclosing their transition plans, a large number have also faced criticism for producing weak plans misaligned with climate science.

“Say on climate” plans produced by European companies this year have faced hefty pushback for falling short of Paris Agreement goals. Despite this, the 18 management “say on climate” plans subject to a vote in Europe as of May 31, 2022, have won 93.5% average support, only a negligible decrease in support compared to 19 winning 96.4% average support throughout 2021.

ShareAction’s claims that climate transition plans from Barclays and Standard Chartered were insufficient, on the grounds that they featured loopholes to ensure continued fossil fuel financing, fell largely on deaf ears. Both U.K. banks’ climate plans won upwards of 80% support at their 2022 annual meetings.

The story is much the same in Australia, where weak climate plans have faced increased opposition yet still gone on to win majority support. The three management “say on climate” plans subject to a vote at Australian-listed companies as of May 31, 2022, have won 66.1% average support, compared to 84.9% support one year prior.

Deficient plans at Santos and Woodside Energy Group got the green light from investors, despite efforts from Market Forces to hold both oil majors accountable for failing to sufficiently address their substantial Scope 3 emissions.

A shaky future

It isn’t hard to see why the “say on climate” campaign is facing mounting pushback from investors, with the ability of shareholders being able to have their say on corporate climate plans being largely overshadowed by the support deficient plans continue to receive.

Karter of ACCR warned that the real test is what investors will do next to “enhance the credibility of company climate commitments.”

“Voting against a non-binding advisory resolution is arguably the easy part. Forcefully engaging to block fossil fuel expansion is another matter altogether,” Kater said.