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How Shareholders Can Fight Climate Change

10.13.2021 - Colleen Silver, Portfolio Manager

Climate change has been a topic of interest among a minority of shareholders in public companies for years. But in 2020 things began to change. Compounding natural disasters, combined with the COVID-19 pandemic, heightened the reality of the global risks of climate change to investors. There have been more majority proxy votes in the past two years on the topic of climate change than in the combined 10 years before that.

In 2020, there were more than 90 climate-focused shareholder resolutions. The largest category of resolutions asked companies to set or report on their greenhouse gas (GHG) reduction efforts. Some asked companies to communicate their plans to align operations with the Paris agreement's goal of limiting the global temperature rise to 1.5 degrees Celsius. Other resolutions asked companies to provide short, medium, and long-term science-based targets that companies would use to reach net-zero GHG emissions by 2050 or sooner. Others simply asked companies to report how they were reducing GHG emissions.

Of the resolutions that went to shareholder proxy vote in 2020, the two most favorable outcomes were a vote in favor of reporting on supply chain deforestation impacts at a large agribusiness by 99% of shareholders and a vote in favor of reporting on net-zero goals at a multinational conglomerate by 98% of shareholders. The managements of both companies voted in agreement with their shareholder majorities.

Affirmative votes on climate resolutions in 2020 were high even where there was management opposition. More than 80% of shareholders voted in favor of reducing plastics pollution at one of the world’s largest chemicals companies and for adopting GHG emission goals at a multinational energy company. By year-end, 1,541 companies had committed to decarbonizing their activities by midcentury.[1] Moreover, some of the largest institutional shareholders began to support resolutions in favor of addressing the negative effects of climate change. This type of shareholder resolution activity suggests the tipping point for change at the corporate level may be at hand.

Understanding shareholder engagement

One of the earliest instances of shareholder engagement was the anti-apartheid movement in South Africa. Activist-led boycotts and other protests raised collective social awareness on the issue beginning as early as the 1950’s. In the 1980’s, it was institutional shareholder engagement that succeeded in convincing US companies to change their investment, lending, and purchasing activities in South Africa. Since that time, hundreds of companies have responded to shareholder engagement on a wide range of issues, including climate change, human rights, product safety, gender pay, plastics pollution, board diversity and more.

Why is shareholder engagement effective? It often takes the collective action of multiple stakeholders to make systems change a reality. The Theory of Change for shareholder engagement highlights the impactful role corporate shareholders can play in this network:

  • Big Companies Matter. Big companies have the scale necessary for solving climate change and other pressing social and environmental issues.
  • Collective Action Can Influence Companies. Shareholders can collectively engage with companies, influencing the policies and the practices of public corporations with the intent to improve their social and environmental performance.
  • Educate the shareholder base and create public pressure. Proxy votes can serve to educate other investors and provide public pressure, an effective lever for change.
Getting started: Putting your shareholder rights to work

Here are some steps to consider taking if you want to get more involved in shareholder engagement:

  • Sign a letter of support for a shareholder resolution. Your signature signals to a company that there is additional shareholder support behind the resolution, which may enable the filer to obtain a meeting with management.
  • File a shareholder resolution. Identify an issue at a company that has not yet been addressed by another shareholder and then take steps to engage with management. If they are not open to engagement, file a resolution. To do so, the SEC first requires that the shareholder meet one of three alternative ownership thresholds:
    • $2,000 of the company’s stock for at least three years;
    • $15,000 of the company’s stock for at least two years; or
    • $25,000 of the company’s stock for at least one year.

A shareholder filing a resolution must also hold company stock at these thresholds through the company’s annual meeting.

The shareholder resolution process is seasonal as most company annual meetings happen in the springtime. The process generally begins with investors and industry experts researching issues and companies. The first attempt to engage with company management is in the autumn. If those investors do not receive a response or secure a dialogue with company management, they begin to file resolutions to be voted on at the annual company meeting. Resolutions are generally filed six months before the annual meeting.

Looking Ahead

During 2021, most climate-related shareholder resolutions were favorably resolved with management, eliminating the need for a vote. Of the 29 resolutions voted on to date, 13 received majority votes. Growing shareholder and management support for company improvements related to climate change is coinciding with increased attention from regulators.

In March 2021, for example, the SEC created a Climate and ESG Task Force to identify material gaps or misstatements in issuer disclosures of climate risks under existing rules. As the SEC and other global regulatory bodies release updated reporting and disclosure requirements for public companies, we will increasingly see the internalization of the previously external costs of a company’s environmental impacts. The various and growing types of regulation in the climate sphere are expected to add up to greater financial materiality of climate change considerations for all companies.

How Fiduciary Trust International Can Help

Shareholder engagement is a unique and powerful tool that can help investors to create impact in the public markets. We believe shareholders have an extraordinary opportunity to make a difference in the fight against climate change.

At Fiduciary Trust International, we partner with our clients to support their involvement in all stages of the shareholder engagement process. We are committed to helping investors understand the role of corporations in mitigating climate change and believe their investor shareholdings can be a strategic lever for change, if they so choose.

[1] https://newclimate.org/wp-content/uploads/2020/09/NewClimate_Accelerating_Net_Zero_Sept2020.pdf




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