Aussie super funds update policy to recommend votes against directors who underperform on climate

Move comes as third legal opinion on Australian director responsibility on climate change risks is published

The Australian Council of Superannuation Investors (ACSI), which provides proxy voting recommendations for 36 of the largest Australian and foreign super funds, will start opposing the re-election of board members who fail to manage climate risks or provide an annual vote on company climate plans and progress.

According to a statement made over the weekend by ACSI, company directors will be assessed against a revised set of investor expectations on climate. These include providing disclosures aligned to the recommendations of the Task Force on Climate-related Disclosures, undertaking scenario analysis, setting Paris-aligned emission targets and aligning policy and advocacy.

In addition, companies will be expected to give investors an annual advisory vote on their management of climate-related risks and opportunities. While there is already ongoing engagement between investors and companies on this subject, a vote would “provide further focus, transparency and accountability”, said ACSI. 

Recommendations to vote against directors will only be issued on a case-by-case basis, targeting individuals with direct oversight of climate risks – such as the Chairs of board-level risk and sustainability committees – and following “extensive engagement” with companies, ASCI said.

The new policy will apply from 2022 onwards, and will focus initially on ASX200 companies in climate-exposed sectors such as energy, utilities, transport and materials.

Commenting on the announcement, ACSI CEO Louise Davidson said: “Not all companies have listened to investor expectations and in many cases, the pace of change is moving too slowly.

“ACSI and our members will constructively engage with companies, however, where a company fails to meet investor expectations we will take action. Our members will not shy away from this responsibility.”

Despite strong investor demand for climate advisory votes, others – such as US public pension giants CalPERS and the Office of New York City Comptroller – have argued that that such votes could result in the ‘rubber stamping’ of insufficient climate plans, likening the initiative the ‘Say on Pay’ campaign which they say failed to achieve change on executive compensation packages a decade ago.

Separately, a new legal opinion has been published warning that Australian boards could be held responsible for “misleading or deceptive conduct” as a result of selectively disclosing climate change exposures or declaring climate goals which are not backed up by credible transition plans, the Australian Financial Review reported.

“Flawed or inaccurate disclosures may be regarded as misleading or deceptive, particularly those that rely on dated information or constitute incomplete or selective disclosure of findings,” it concluded.

It is the third assessment published on the legal responsibilities of Australian directors with regards to managing climate-related risks. Last week, RI reported on an earlier opinion, which said that pensions trustees were “obliged” to understand and manage the “risk posed by climate change to investments”.

According to the Australian Financial Review, the latest opinion was coordinated by influential think tank the Centre for Policy Development, and has been endorsed by the Australian Institute of Company Director Business Council of Australia and diversity advocacy group Chief Executive Women.