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.

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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.