Say on Climate: the influential role of shareholders in company policies

Share­hold­er gen­er­al meet­ings are a key moment of share­hold­er demo­cracy – par­tic­u­larly for lis­ted com­pan­ies. Indeed, it is when share­hold­ers are usu­ally con­sul­ted on a range of vital sub­jects: elec­tions for the board of dir­ect­ors, remu­ner­a­tion of the exec­ut­ives or the modi­fic­a­tion of the com­pany’s stat­utes. Under cer­tain con­di­tions, they can also pro­pose res­ol­u­tions to be voted on, such as essen­tial cli­mate policies. It is in this con­text that the Say on Cli­mate mod­el has appeared.

Designed on the mod­el of Say on Pay, which con­cerns the remu­ner­a­tion of exec­ut­ives, it was born in the United States and is spread­ing in Europe, now in France. A res­ol­u­tion on the agenda of gen­er­al meet­ings, Say on Cli­mate can be tabled by the com­pany itself – or by its share­hold­ers – to have share­hold­ers vote each year on the cli­mate policy of lis­ted com­pan­ies and thus ensure a per­man­ent dia­logue on envir­on­ment­al issues.

As early as 2009, Ceres (Coali­tion for Envir­on­ment­ally Respons­ible Eco­nom­ies, an NGO spe­cial­iz­ing in sus­tain­able devel­op­ment) and sev­er­al major insti­tu­tion­al investors sent a peti­tion to the Amer­ic­an fin­an­cial author­ity, the Secur­ity Exchange Com­mis­sion (SEC), ask­ing them to require com­pan­ies to be more trans­par­ent about their cli­mate impacts and car­bon footprint.

In Janu­ary 2019, 30 cur­rent and former Amazon employ­ees who held bonus shares filed a res­ol­u­tion for Amazon to present a cli­mate action plan. A few weeks later, in April 2019, more than 6,000 U.S. Amazon employ­ees sent a let­ter to their CEO, Jeff Bezos, in sup­port of this move.

In Decem­ber 2017, the Cali­for­nia Pub­lic Employ­ees’ Retire­ment Sys­tem (CalP­ers), America’s largest pub­lic pen­sion fund (1.6 mil­lion Cali­for­ni­ans), launched Cli­mate Action 100+. This ini­ti­at­ive brings togeth­er investors who are enga­ging with cli­mate-crit­ic­al com­pan­ies, those rep­res­ent­ing two-thirds of glob­al green­house gas emis­sions, to take the neces­sary steps to com­bat cli­mate change. Of these some 166 com­pan­ies are Air France, KLM, Air­bus, Arcelormit­tal, Pep­si, and TotalEn­er­gies¹.

Well developed in the United States, these fil­ings are often made fol­low­ing an unsuc­cess­ful dia­logue with the com­pany’s man­age­ment.  Dia­logue with com­pan­ies and tabling of draft res­ol­u­tions pre­sup­pose hold­ing a sig­ni­fic­ant pro­por­tion of cap­it­al, to have influ­ence over com­pan­ies or in the gen­er­al meet­ing. In gen­er­al, reg­u­la­tions set a min­im­um threshold of shares to pro­pose res­ol­u­tions. In France, this threshold is 5% of shares for SARL / SA, in the United States it is suf­fi­cient to have $2,000 worth of shares.

In the United States, extern­al res­ol­u­tions were mainly related to gov­ernance, in par­tic­u­lar exec­ut­ive com­pens­a­tion before the adop­tion of Say on Pay. For the past 10 years, how­ever, ESG issues have rep­res­en­ted most extern­al res­ol­u­tions. Envir­on­ment­al res­ol­u­tions, espe­cially cli­mate res­ol­u­tions, are now as numer­ous as gov­ernance res­ol­u­tions. This is likely due to US envir­on­ment­al reg­u­la­tions being less restrict­ive; hence, share­hold­ers sub­sti­tute for the state. To date, the vote on Say on Cli­mate res­ol­u­tions is purely con­sultat­ive. Also, in the absence of any leg­al frame­work, opin­ions giv­en are not leg­ally binding. 

In France, the major­ity of extern­al res­ol­u­tions con­cern gov­ernance issues (appoint­ment of dir­ect­ors, exec­ut­ive com­pens­a­tion, etc.). The first case observed of a cli­mate res­ol­u­tion was TotalEn­er­gies, in 2020, with a draft amend­ment to the art­icles of asso­ci­ation provid­ing for the com­pany to set cat­egory 1, 2 and 3 emis­sion reduc­tions in the medi­um and long term in applic­a­tion of the Par­is Cli­mate Agree­ments².

The Share Asso­ci­ation lists a total of elev­en cli­mate res­ol­u­tions in Europe in 2020: six in Nor­way, four in the UK, and one in France. With the excep­tion of Barclays, they all tar­get oil com­pan­ies. While these remain isol­ated cases, they are increas­ing in num­ber. As com­pared to less than two cases per year on aver­age before 2015, there were five between 2015 and 2019. 

Ten French com­pan­ies took part in the Say on Cli­mate test in 2022, namely Amundi, Car­re­four, EDF, Elis, Engie, Get­link, Icade, Mer­cia­lys, Nex­ity and TotalEn­er­gies³. The aver­age approv­al rate of cli­mate plans put forth for these ten com­pan­ies was 93%. Accord­ing to the FIR, these res­ults under­line “pro­gress in har­mon­ising report­ing with pre­cise cri­ter­ia and indicators”.

The rate of approv­al of res­ol­u­tions rose to 37% for res­ol­u­tions not approved by the Board (res­ol­u­tions approved by the Board are over 98%). The iden­tity of pro­moters has also changed; along­side asso­ci­ations or NGOs, we are now see­ing more insti­tu­tion­al investors. Cli­mate-related res­ol­u­tions can be clas­si­fied into two cat­egor­ies: those that require more inform­a­tion on cli­mateo­b­ject­ives and the cor­res­pond­ing means imple­men­ted, and those that guide the operations.

In the most con­tro­ver­sial situ­ations, share­hold­ers or groups of share­hold­ers may threaten leg­al action, or sue com­pan­ies whose policies they dis­ap­prove of. In the case of cli­mate risks, the plaintiffs are most often NGOs or cit­ies — dir­ect vic­tims of the con­sequences of cli­mate change — and rarely share­hold­ers. One example was the con­dem­na­tion of the French state for cli­mate inac­tion in 2021 by the admin­is­trat­ive court of Par­is. This fol­lowed actions taken in 2019 by Green­peace, Oxfam, the Nic­olas Hulot Found­a­tion and Notre Affaire à Tous.

Still, there are cases of com­pan­ies being sued by investors for lack of trans­par­ency on cli­mate risk. For example, in August 2017, share­hold­ers filed a law­suit against the Com­mon­wealth Bank of Aus­tralia for fail­ing to dis­close, in their 2016 annu­al report, cli­mate risk related to the fin­an­cing of a coal mine in Queensland.

Des­pite socially respons­ible invest­ment becom­ing a wide­spread issue for share­hold­ers who care to shield them­selves from cli­mate-related risks or repu­ta­tion­al dam­age, ESG reg­u­la­tion is fur­ther driv­ing this momentum. In Europe, a suite of recent announce­ments of legis­lat­ive dir­ect­ives on sus­tain­ab­il­ity dis­clos­ures may help increase not only the quant­ity, but the qual­ity of Say on Cli­mate resolutions. 

While the ambi­tion to fight against the neg­at­ive effects of cli­mate change is easy to state, its imple­ment­a­tion is more com­plex to define, raises con­cerns, and feed legit­im­ate doubts. In con­crete terms, what new prac­tices should be imple­men­ted? How can ambi­tion become proven action? Look­ing at the cli­mate pledges of com­pan­ies, many are insuf­fi­ciently defined. Some­times, poor action plans are not a con­sequence of inten­tion­al mal­ad­apt­a­tion but rather, lack of know­ledge and the resources to veri­fy impact.

Numer­ous com­pan­ies have merely sub­mit­ted Say on Cli­mate res­ol­u­tions as a formality.

This is also true for Say on Cli­mate fil­ings, where the sub­ject may vary accord­ing to issuers, for example, one estab­lish­ing an energy trans­ition plan while the oth­er con­sid­er­ing cli­mate policies for the first time. The con­sequence of this is a high­er like­li­hood of Gre­en­wash­ing, where numer­ous com­pan­ies have merely sub­mit­ted Say on Cli­mate res­ol­u­tions as a form­al­ity, lack­ing trans­par­ent plans, con­crete strategies, or suf­fi­cient ambi­tion. While it is under­stood that estab­lish­ing a mean­ing­ful cli­mate strategy is dif­fi­cult, espe­cially the first time, cli­mate res­ol­u­tions must ulti­mately lead to meas­ur­able, and sci­ence-aligned action. 

There­fore, sus­tain­ing share­hold­er engage­ment is essen­tial, so that com­pan­ies’ cli­mate ambi­tion and the dis­clos­ure of exec­ut­ives may be ana­lysed and revised on a reg­u­lar basis. Yet, accord­ing to MSCI, most Say on Cli­mate votes in 2021 (58%) were one-time events, with only 24% of votes set to have annu­al fol­low-ups⁴. So, how to ensure cli­mate action and not merely investor dis­trac­tion? Policy actions and fur­ther stake­hold­er ini­ti­at­ives could improve the out­comes of Say on Cli­mate.

Giv­en the report­ing man­dates as part of the European Green Deal in 2021, and increas­ing access to ESG data, it is expec­ted that share­hold­ers will become more vocal and strin­gent in requis­i­tion­ing Say on Cli­mate res­ol­u­tions. Already, in France there has been a call to Autor­ité des marchés fin­an­ci­ers (AMF) to man­date all com­pan­ies sub­ject to the CSRD to be required to Say on Cli­mate⁵. Com­pan­ies, too, will bene­fit from hav­ing already col­lec­ted much of their ESG data to com­ply with reg­u­la­tion, and be empowered to put forth mater­i­al Say on Cli­mate proposals. 

With the intro­duc­tion of sus­tain­able tax­onom­ies, share­hold­ers and man­agers can use a stand­ard­ized frame­work to identi­fy envir­on­ment­ally focused activ­it­ies. This will enable them to com­mu­nic­ate effect­ively using a shared ter­min­o­logy and ensure align­ment in their object­ives. Lastly, the require­ments of man­dat­ory sus­tain­ab­il­ity dis­clos­ures should inform Say on Cli­materes­ol­u­tions and trans­late into good prac­tice for com­pany cli­mate plans, for example, incor­por­at­ing indir­ect emis­sions (scope 2 and 3) and ensur­ing sci­ence based tar­get and trans­ition paths. 

As Say on Cli­mate gains momentum in Europe, it is neces­sary for eco­nom­ic act­ors to con­tin­ue to work on improv­ing the nature of cli­mate-related dis­course and res­ol­u­tions, and ensure it does not become a fash­ion­able exer­cise without substance. 

Some stake­hold­ers advoc­ate for provid­ing a leg­al frame­work on Say on Cli­mate, to improve out­comes of res­ol­u­tions. Since Say on Cli­mate is first and fore­most, a private ini­ti­at­ive and not a reg­u­lat­ory man­date, any frame­work should focus on del­eg­at­ing the duties of Say on Cli­mate and out­lining how motions ori­gin­at­ing from com­pany man­age­ment, board of dir­ect­ors, or share­hold­ers should be treated. Cur­rently, the absence of clar­ity and vary­ing inter­pret­a­tions regard­ing the extent of each stake­hold­er­’s author­ity in Say on Cli­mate res­ol­u­tions has res­ul­ted in ten­sions and con­flicts with­in cli­mate-related discussions. 

Nev­er­the­less, policy actions, such as the ini­ti­at­ives of the EU Sus­tain­able Fin­ance Frame­work, should sup­port and pos­it­ively inter­act with share­hold­er engage­ment. By provid­ing guidelines to com­pan­ies, redu­cing uncer­tainty and investor fatigue, policies should help facil­it­ate under­stand­ing a company’s ESG and plan their sus­tain­ab­il­ity trans­ition. Har­mon­iz­ing reg­u­la­tion with private ini­ti­at­ives and con­cerns con­tin­ues to be para­mount for mobil­iz­ing all corners of the eco­nomy to dir­ect fin­ance into sus­tain­able invest­ment, build trust, and reach com­mon goals.