- The number of companies putting climate plans to a shareholder vote is rising fast, with several banks doing so for the first time this year.
- A higher share of investors vote against climate plans proposed by banks than in other sectors. It was 17% for Standard Chartered.
- The effectiveness of ‘Say on Climate’ votes is increasingly being questioned by bank executives, including Standard Chartered’s head of sustainability strategy.
Shareholder activism is seen as key for holding the financial and wider business communities to account on their environmental commitments. However, the effectiveness of Say on Climate votes led by boards and those proposed by activist investors is coming under increased scrutiny.
Say on Climate votes – an initiative set up to enable investors to express their view – are seen by many as a positive tool to signal to the market that a company had a climate transition plan in place. But they are increasingly being criticised as a blunt mechanism that is too binary or restrictive (often by the firms they target, but also by asset managers such as BlackRock). Another issue raised (often by campaign groups and activist investors) is that these votes can be used to facilitate greenwashing by giving companies licence to operate poor strategies on the back of shareholder approval.
This shift in sentiment has come as campaign groups and some investors raise the urgency of their calls for the corporate and financial world to drastically step up and accelerate their actions to cut emissions. They are doing so on the back of increasingly dire warnings from scientists belonging to bodies such as the International Energy Agency (IEA), with tighter regulation more frequently cited as the only feasible solution.
The 2022 AGM season is the second year that companies have voluntarily proposed Say on Climate resolutions, and the trend is accelerating fast. In Europe, the number has risen to 32 so far this year from 17 in 2021, according to Georgeson, a proxy voting services provider.
This year, companies across all sectors have on average received 91% support for their climate proposals, but the approval rate falls to 86.5% in financial services, according to Georgeson data. Barclays, NatWest, Standard Chartered and UBS have all put plans to shareholder vote, with shareholder dissent ranging widely from 7.42% at NatWest to 22.26% at UBS.
Standard Chartered’s own Say on Climate resolution received 83.02% support. The proposal asks specifically for support on the bank’s climate plans announced on 21 October, noting that it may be amended from time to time.
Around 17% of votes against is quite a sizeable portion, says Paul Lee, head of stewardship and sustainable investment strategy at investment consultancy Redington. “You can take this as being [an indication] that shareholders don’t believe the bank is going far enough at this stage.”
London-based Lee points to recent votes at Barclays that saw similar percentages of shareholders voting against the banks’ climate proposals. “It’s a consistent mood that shareholders think financial institutions need to do more in this space,” he adds. However, the figure must hit 20% to prompt a policy reappraisal.
Driving change at banks?
So are these AGM votes prompting change within the banks?
For Simon Connell, Standard Chartered’s global head of sustainability strategy, the climate vote must be a point of disappointment, as it followed a series of updates to the net-zero emissions pathway the bank first set out in October last year.
In March, Standard Chartered agreed to end legacy direct coal financing globally by 2032, set absolute financed emissions targets for oil and gas by its 2023 AGM, and set targets for eight other sectors. The bank also confirmed that by its next AGM it would set facilitated emission targets (under Scope 3) for its capital markets activities, in line with the US-based Partnership for Carbon Accounting Financials standards.
And while Standard Chartered is still substantially financing fossil fuels – to the tune of $6.29bn last year, according to a March report from the Rainforest Action Network – the same report says the amount it is providing to the sector has fallen every year since 2019.
Connell says those who voted against the bank’s resolution were “those who would have liked to see more” or an amended proposal.
“We're still running the analysis on exactly who [voted against it]. My sense is that the larger investors are more predisposed to support the resolution.” He says it is unclear whether that is because the bank spent more time explaining its strategy to larger investors or because smaller investors are more likely to think independently.
In any case, since the vote did not trigger the 20% threshold, Connell says the bank is not planning any direct amendments to its strategy just yet. “The process here is one of… reflecting on what we are hearing. Is it a changing perspective [that gives us] some new information to act on?
“It is a complex picture; our task is to try and distil what we are hearing, weighted by the register,” he adds. If there’s a consensus view from a number of significant shareholders, “that goes on the ‘must do’ list”.
The board-led climate vote can, then, clearly be an important signalling tool. A near 20% vote is a sizeable level of dissent. All other votes against the board were only as high as 5%, with the exception of those against resolutions on executive pay, which were opposed by 30% of shareholders.
Climate votes: too binary?
However, many see climate votes’ usefulness as limited. Connell suggests the binary nature of the climate vote is an issue. “We need to move away from measuring success by a pretty binary metric of votes against us or for us,” he says.
Connell advocates using votes on individual directors around such things as re-election and remuneration as ways for investors to engage with institutions.
“If you're in a world in which [climate resolutions are unduly prescriptive], from a shareholder perspective, then you take away that flexibility or you give shareholders an unduly onerous task to track exactly how things are changing,” he says. “I think investors are very wary of getting themselves unduly involved in that complexity.”
Corporate management need to be able to adjust and deviate from these scenarios. “Nobody wants a situation in which a net-zero plan is voted on and then stays static forever,” says Connell, arguably a little disingenuously, since climate strategies can presumably be amended at least on a yearly basis with shareholder approval.
Indeed Adam McGibbon, UK campaign lead at non-government organisation Market Forces, sees such arguments as red herrings. Between AGMs, banks “don’t need permission from investors to make climate policies”, he says. “It’s a delay[ing] tactic.”
Even when fund managers and asset owners are given the chance to hold banks to account, they often spurn it.
For instance, Standard Chartered’s shareholders voted against a climate resolution brought on 4 May by Market Forces and independent charity Friends Provident Foundation. They had called on the bank to commit to stop financing new – or expansions of – fossil fuel projects and to set short, medium and long-term targets to reduce its fossil fuel exposure in line with the goal of achieving net-zero emissions by 2050.
Only 11.7% voted for the resolution, which was a disappointing outcome for Market Forces. “There were some, like Legal & General, Allianz and Aviva, that should have voted for us but didn’t,” says McGibbon. “It speaks to a problem with asset managers and owners not feeling like they are under enough pressure to vote for climate resolutions.”
Shareholder influence on climate plans
All this being said, Connell argues that shareholder views on climate are increasingly influencing bank policy. The level of investor engagement on climate has become much more sophisticated over the past 12 months, he adds.
The bank’s shareholders are still chiefly concerned with questions such as how much money the bank is making through sustainable finance and through the lens of ESG risk metrics and what they stand to lose from climate change, Connell says. But there is a now a higher level of engagement on areas such as the bank’s warming potential and how its shift in climate policy is affecting the planet, he adds.
Mandatory climate disclosure will have helped drive this trend. Since April this year certain large companies in the UK have had to report on their climate risks. The regulation encourages them to set out their emission reduction plans and sustainability credentials.
Connell, meanwhile, says he expects regulation focused on climate resolutions to standardise and set context within which boards might bring climate resolutions to a shareholder vote.
Yet many now argue that more robust – and indeed prescriptive – rules will be needed to drive the rapid action by financial institutions required to address climate change. After all, banks appear unlikely to do more than is asked of them by their investors, and shareholders are still reluctant to back non-board-led resolutions.