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

Ekatarina Ghosh
Ekaterina Ghosh
student in economics of smart cities and climate policies at École Polytechnique (IP Paris)
Patricia Crifo
Patricia Crifo
Professor of Economics at École Polytechnique (IP Paris), Researcher at CREST (CNRS) and Associate Researcher at CIRANO
Key takeaways
  • Say on Climate is a resolution on a company's climate strategy that is put to a shareholder vote at a general meeting.
  • In the event of major controversy, shareholders can threaten legal action or take legal action against companies whose policies they disapprove of.
  • Many companies submit Say on Climate resolutions purely as a formality and without any real ambition: they are more likely to be greenwashing.
  • The lack of clarity regarding the authority of stakeholders in Say on Climate resolutions has led to tensions in climate-related discussions.
  • Stakeholder policies and initiatives could help to improve Say on Climate

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.

Shareholders can influence climate policy 

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.

This is what we call shareholder engagement

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.

European companies on board

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.

Say on Climate and regulation 

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.

How will these policies interact with 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. 

The future of Say on Climate

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. 

2See P. CHARLÉTY (2020) Finan­cial Investors: Effec­tive Activists in the Face of Cli­mate Risks?. Revue d’economie finan­cière n°138, pp 139–155.

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