Show us the plan: Investors push companies to come clean on climate
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[February 24, 2021] By
Simon Jessop, Matthew Green and Ross Kerber
LONDON/BOSTON (Reuters) - In the past,
shareholder votes on the environment were rare and easily brushed aside.
Things could look different in the annual meeting season starting next
month, when companies are set to face the most investor resolutions tied
to climate change in years.
Those votes are likely to win more support than in previous years from
large asset managers seeking clarity on how executives plan to adapt and
prosper in a low-carbon world, according to Reuters interviews with more
than a dozen activist investors and fund managers.
In the United States, shareholders have filed 79 climate-related
resolutions so far, compared with 72 for all of last year and 67 in
2019, according to data compiled by the Sustainable Investments
Institute and shared with Reuters. The institute estimated the count
could reach 90 this year.
Topics to be put to a vote at annual general meetings (AGMs) include
calls for emissions limits, pollution reports and "climate audits" that
show the financial impact of climate change on their businesses.
A broad theme is to press corporations across sectors, from oil and
transport to food and drink, to detail how they plan to reduce their
carbon footprints in coming years, in line with government pledges to
cut emissions to net zero by 2050.
"Net-zero targets for 2050 without a credible plan including short-term
targets is greenwashing, and shareholders must hold them to account,"
said billionaire British hedge fund manager Chris Hohn, who is pushing
companies worldwide to hold a recurring shareholder vote on their
climate plans.
Many companies say they already provide plenty of information about
climate issues. Yet some activists say they see signs more executives
are in a dealmaking mood this year.
Royal Dutch Shell said on Feb. 11 it would become the first oil and gas
major to offer such a vote, following similar announcements from Spanish
airports operator Aena, UK consumer goods company Unilever and U.S.
rating agency Moody's.
While most resolutions are non-binding, they often spur changes with
even 30% or more support as executives look to satisfy as many investors
as possible.
"The demands for increased disclosure and target-setting are much more
pointed than they were in 2020," said Daniele Vitale, the London-based
head of governance for Georgeson, which advises corporations on
shareholder views.
COMPANIES WARM THE WORLD
While more and more companies are issuing net-zero targets for 2050, in
line with goals set out in the 2015 Paris climate accord, few have
published interim targets. A study
https://www.southpole.com/
news/survey-just-1-in-10-businesses-have-backed-up-net-zero-ambitions-with-science-based-targets
from sustainability consultancy South Pole showed just 10% of 120 firms
it polled, from varied sectors, had done so.
"There's too much ambiguity and lack of clarity on the exact journey and
route that companies are going to take, and how quickly we can actually
expect movement," said Mirza Baig, head of investment stewardship at
Aviva Investors.
Data analysis from Swiss bank J Safra Sarasin, shared with Reuters,
shows the scale of the collective challenge.
Sarasin studied the emissions of the roughly 1,500 firms in the MSCI
World Index, a broad proxy for the world's listed companies. It
calculated that if companies globally did not curb their emissions rate,
they would raise global temperatures by more than 3 degrees Celsius by
2050.
That is well short of the Paris accord goal of limiting warming to "well
below" 2C, preferably 1.5C.
https://tmsnrt.rs/3iJoUC8
At an industry level, there are large differences, the study found: If
every company emitted at the same level as the energy sector, for
example, the temperature rise would be 5.8C, with the materials sector -
including metals and mining - on course for 5.5C and consumer staples -
including food and drink - 4.7C.
https://tmsnrt.rs/3c13GhC
The calculations are mostly based on companies' reported emissions
levels in 2019, the latest full year analysed, and cover Scope 1 and 2
emissions - those caused directly by a company, plus the production of
the electricity it buys and uses.
'TAILWIND ON CLIMATE'
Sectors with high carbon emissions are likely to face the most investor
pressure for clarity.
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Climate protestors display a banner outside the venue where Swiss
bank Credit Suisse holds the company's annual shareholder meeting in
Zurich, Switzerland April 26, 2019. REUTERS/Arnd Wiegmann/File Photo
In January, for example, ExxonMobil - long an energy industry laggard in setting
climate goals - disclosed its Scope 3 emissions, those connected to use of its
products.
This prompted the California Public Employees' Retirement System (Calpers) to
withdraw a shareholder resolution seeking the information.
Calpers' Simiso Nzima, head of corporate governance for the $444 billion pension
fund, said he saw 2021 as a promising year for climate concerns, with a higher
likelihood of other companies also reaching agreements with activist investors.
"You're seeing a tailwind in terms of climate change."
However, Exxon has asked the U.S. Securities and Exchange Commission for
permission to skip votes on four other shareholder proposals, three related to
climate matters, according to filings to the SEC. They cite reasons such as the
company having already "substantially implemented" reforms.
An Exxon spokesman said it had ongoing discussions with its stakeholders, which
led to the emissions disclosure. He declined to comment on the requests to skip
votes, as did the SEC, which had not yet ruled on Exxon's requests as of late
Tuesday.
'A CRUMB BUT A SIGN'
Given the influence of large shareholders, activists are hoping for more from
BlackRock, the world's biggest investor with $8.7 trillion under management,
which has promised a tougher approach to climate issues.
Last week, BlackRock called for boards to come up with a climate plan, release
emissions data and make robust short-term reduction targets, or risk seeing
directors voted down at the AGM.
It backed a resolution at Procter & Gamble's AGM, unusually held in October,
which asked the company to report on efforts to eliminate deforestation in its
supply chains, helping it pass with 68% support.
"It's a crumb but we hope it's a sign of things to come" from BlackRock, said
Kyle Kempf, spokesman for resolution sponsor Green Century Capital Management in
Boston.
Asked for more details about its 2021 plans, such as if it might support Hohn's
resolutions, a BlackRock spokesman referred to prior guidance that it would
"follow a case-by-case approach in assessing each proposal on its merits".
Europe's biggest asset manager, Amundi, said last week it, too, would back more
resolutions.
Vanguard, the world's second-biggest investor with $7.1 trillion under
management, seemed less certain, though.
Lisa Harlow, Vanguard's stewardship leader for Europe, the Middle East and
Africa, called it "really difficult to say" whether its support for climate
resolutions this year would be higher than its traditional rate of backing one
in ten.
'THERE WILL BE FIGHTS'
Britain's Hohn, founder of $30 billion hedge fund TCI, aims to establish a
regular mechanism to judge climate progress via annual shareholder votes.
In a "Say on Climate" resolution, investors ask a company to provide a detailed
net zero plan, including short-term targets, and put it to an annual non-binding
vote. If investors aren't satisfied, they will then be in a stronger position to
justify voting down directors, the plan holds.
Early signs suggest the drive is gaining momentum.
Hohn has already filed at least seven resolutions through TCI. The Children's
Investment Fund Foundation, which Hohn founded, is working with campaign groups
and asset managers to file more than 100 resolutions over the next two AGM
seasons in the United States, Europe, Canada, Japan and Australia.
"Of course, not all companies will support the Say on Climate," Hohn told
pension funds and insurance companies in November. "There will be fights, but we
can win the votes."
(Additional reporting by Sonali Paul in Sydney, Francesca Landini in Milan,
Clara-Laeila Laudette in Madrid and Shadia Nasralla in London; Editing by Katy
Daigle and Pravin Char)
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