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Bringing Climate To The Boardroom

Voting on Say-On-Pay resolutions at Annual General Meetings (AGMs) in the boardroom has become the norm for shareholders globally. Now, Say-On-Climate resolutions are becoming more common with shareholders pushing for more governance on climate related risks, decarbonisation strategies and disclosures at the board level.

As part of our climate guardrails that we set earlier this year, we committed to write to 100% of our portfolio company boards to bring a Say-On-Climate resolution to the Annual General Meeting for shareholders to vote on, if they have not already done so. In this ARCUS, our Stewardship and Partnership Panvestor, Davina Ho, discusses the importance of climate governance in the boardroom.

Happy Panvesting,

Munib Madni,

Founding Panvestor

Climate Shareholder Resolutions: A Catalyst for Change Or Not Yet?

Shareholder resolutions have emerged as powerful tools for investors to influence corporate behaviour, but how do they stack up in addressing climate change? In recent years, there has been a significant uptick in the number of climate-related shareholder resolutions. Investors are recognizing the material impact of climate change on companies' long-term financial performance and are increasingly demanding that corporations align their strategies with a low-carbon, sustainable future. Unfortunately, the resolutions have seen limited support from some of the largest shareholders in the world who have yet to decide on their voting strategies for Say-On-Climate resolutions. Some shareholders have even cited that bringing a Say-On-Climate resolution to the boardroom might make the board more complacent by making it a ‘rubber-stamping exercise’ if approval is as high, as is Say-On-Pay which sits at 98% in the US. We would beg to differ. While we are still in the early days of Say-On-Climate votes, we can see a range of viewpoints being expressed. In the US, for example, climate-related shareholder resolutions have risen, but shareholder support for such resolutions has declined from 47% to just 23%, as shareholders view them as either too strict or too lax. No rubber stamping...instead a healthy debate.

Europe, by contrast, has very high support from shareholders with Unilever’s Say-On-Climate passing with 99.5% support, for example. However, even Europe’s progress and pace on Say-On-Climate is being checked as earlier this year when a parliamentary initiative to mandate Say-on-Climate (as opposed to voluntary effort by companies) in France was voted against by the corporate space. Amid this debate, as a climate conscious fund manager, we believe that it’s essential that in the first instance climate actions of a company should be governed at the board level. Where boards need a nudge such governance could be mandated through legislation as further explained below. What Are We Looking For In A Say-On-Climate Resolution? Climate change represents a fundamental risk to an investor’s long-term returns and can materially impact every single company in our portfolio. We believe and advocate for Say-On-Climate resolutions to be brought to the AGM because we recognize climate change as a systemic issue that should be governed at the highest levels at companies. It signals to the board of directors that climate is a issue which shareholders will hold them accountable to. Therefore, they need to ensure that climate risks and opportunities are incorporated into the company’s short, medium and long-term business strategy. A Say-On-Climate Resolution should have:

  1. A publicly available transition plan or strategy with medium and long-term climate targets that are science-based.

  2. An annual disclosure of climate progress and reporting of GHG emissions using TCFD or TCFD aligned standards.

  3. Third party assurance or verification.

Prior to next year’s AGMs, we will be writing to all of our portfolio companies asking them to amend the company by-laws to incorporate a Say-On-Climate resolution so that this is put to an annual vote at the AGM. Our aim with these letters is to advocate that we believe the board and shareholders should be monitoring targets and progress on climate change matters. Schneider Electric Case Study At this year’s AGM the Schneider Electric board brought a resolution to the AGM to approve the company’s Climate Strategy which was passed with 98% approval from shareholders. The company put together a climate strategy that covered all of our requirements with 2030 and 2050 science-based targets, regular and transparent reporting and audited GHG emissions.

Source: Schneider Electric

The only area we would like to change in the resolution is that the next vote will only be in 3 years time, at the 2026 AGM instead of our preference for annual votes. However, when we took into account Schneider Electric’s current robust annual reporting on GHG emissions as well as our fruitful engagement sessions with management, we voted FOR the resolution. Bringing Climate Resolutions To AGMs There are three ways to bring climate resolutions to the AGMs. The first would be a government mandated Say-On-Climate vote for all listed companies, which currently no country has implemented successfully (as mentioned, France did attempt this earlier this year). The second would be for shareholders themselves to file resolutions on climate related issues. And the third would have the company voluntarily bring climate resolutions to the agenda itself, as we’ve seen with some of our portfolio companies. To avoid the ‘rubber-stamping’ we’ve seen with Say-On-Pay resolutions, there could also be a ‘two strikes and you’re out’ policy, such as was implemented in Australia. Under their policy, if 25% of shareholders vote against a company’s remuneration report at two consecutive annual general meetings, the entire board may have to stand for re-election within three months. This would incentivise board members to make sure they are adequately qualified on climate-related matters when seeking nomination to the board. It would also ensure that the CEO and other executives of the company have a credible climate strategy across all their business operations and when making future M&A or other capital allocation decisions. However, we would need policymakers to enforce a robust framework like this. So, How Else Can We Govern Climate At The Board Level?

  1. Letters and Board-level Engagement

Most shareholders have been engaging with the management teams of their portfolio companies directly on climate related issues. However, direct engagement at the board level is another way to communicate the urgency in creating a credible climate strategy.

  1. Shareholder Proposals

Companies that fail to engage on the issue or do not deliver credible decarbonisation plans can have shareholder proposals filed for their next AGM to gather support from other shareholders to make them do so.

  1. Board of Director Nominations

When assessing the composition of a Board of Directors, it is important that climate-related expertise is well represented. Moreover, a rejuvenation of the Board should be actively pursued should climate related progress prove unsatisfactory. Finally, nomination of board members that may explicitly oppose climate-related policies should be pursued with due care, considering the potential operational and reputational risks this can involve. As always, active engagement with respect to the suitability or unsuitability of candidates is key.

  1. Setting Climate-related KPIs For Executives

The board should set executive KPIs that adequately cover progress in the company’s decarbonisation and business strategy in the short, medium and long-term. Conclusion As we approach next year's AGMs, we are beginning to send the Board of Directors of our portfolio companies letters, urging them to amend their by-laws for an annual Say-On-Climate vote. In navigating the intricate landscape of sustainable finance, as a climate conscious investor, we are resolute in our commitment to advancing climate action at all levels. In doing so we hope to create impactful climate change at all of our portfolio companies. Happy Panvesting, Davina Ho Stewardship and Partnership Panvestor

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