CA100+ investors ‘failing to hold directors at US focus companies to account’

Majority Action report finds initiative’s most systemically important investors have poor records on director votes at climate laggards.

Leading members of Climate Action 100+ are failing to hold directors at its US focus companies to account, according to a new report from Majority Action.

This is the second time the NGO has conducted an analysis of the voting and disclosure of key CA100+ investor-signatories. The latest edition focuses on 73 “key” investors and their voting activities at 45 companies in the US.

The report looked at investors that were among the largest signatories by AUM, were included in the top 30 holders of company shares, or were identified by Responsible Investor analysis as a lead engager, and for whom there was voting data available for the 2022 proxy season in Insightia.

Among its findings, the report claims that 42 of these key signatories supported 90 percent or more directors at US-based focus companies.

In particular, eight supported every single director at focus companies they voted on in 2022. These include Janus Henderson, which voted at 41 firms; ClearBridge, which voted at eight; and Pimco and Baillie Gifford, which each voted at six.

Baillie Gifford declined to comment. The other three investors did not respond to a request for comment.

Sector leaders

The report also highlighted the leaders – investors that supported fewer than 60 percent of directors at US-based focus companies.

BNP Paribas topped the list, supporting just 22.9 percent of directors. Miller/Howard Investments, Amundi, Sarasin, Parametric and Aviva were also noted for their performance.

Adam Kanzer, head of stewardship, Americas at BNP Paribas Asset Management, says the manager “would like to see more investors doing the same and holding boards accountable”.

“Ultimately, a company’s responsibility for tackling climate change rests with the board of directors,” he says. “CA100+ has been going for five years now and we think the requests are clear. if you’re one of the largest corporate GHG emitters in the world and you don’t have a meaningful net zero by 2050 target, we think it’s time to escalate.”

Last year, BNP Paribas AM upgraded its voting policy to reinforce the importance of this commitment.

According to the policy, if a company in the US and Canada scores zero on the first indicator of the CA100+ net-zero benchmark – which relates to setting a net zero by 2050 target – then BNP Paribas AM will vote against the whole board.

If it achieves a partial score, Kanzer says the manager will look at whether “the company has made any meaningful progress in the past year”.

Moving forward, Kanzer hopes the report will encourage other investors who may be reticent to find more effective ways to hold directors accountable.

Another key finding of the report was that 10 signatories supported every single director at the 17 US-based companies that failed to disclose a net-zero ambition.

Once again, BNP Paribas AM was highlighted as a leader for voting against the whole board at 71 percent of these firms.

The report also found that, while some investors voted against more directors in 2022 than in 2021, the largest investor-signatories actually increased support for directors at US-based focus companies.

A spokesperson for Climate Action 100+ says investor signatories and convening investor networks recognise “that focus companies individually and collectively still need to go further and faster”.

They stress, however, that investor signatories vote for proposals in their individual capacity and not on behalf of the initiative.

CA100+ never requires collective decision-making, provides investment or voting recommendations, or requires support for specific resolutions or votes, the spokesperson added.

Flagging failures

The report also looked at votes against directors “flagged” by investor signatories to other members. While CA100+ makes no recommendations on how investors should vote at flagged votes, it does highlight them to members. In the 2022 proxy season, 11 directors at six companies were flagged.

Of the key investors, 13 supported fewer than one-third of these directors, including Union Investment and BNP Paribas AM, and 15 percent opposed at least one flagged director at all six companies. Majority Action says that flagging serves “an essential function” in signalling important votes to peers.

However, nearly half the key signatories failed to oppose flagged directors, with 14 signatories voting for all of them and 17 voting for all but one. The main focus of investor discontent was Susan Decker, Berkshire Hathaway’s audit committee chair, who was flagged by CalPERS and opposed by all 17 of the investors, as well as around 13 percent of shareholders overall.

Calls for reform

Responsible Investor has also seen a copy of a memorandum sent to CA100+ co-ordinating networks by Majority Action, with input from ShareAction, the ACCR, Follow This, As You Sow and the Shareholder Commons.

According to the memo, conversations held by Majority Action in the 2021 and 2022 AGM seasons suggest that there are several reasons why CA100+ leads can be reluctant to escalate with firms.

Some investors fear “either a loss of the relationship with the company or a perception that escalation reflects poorly on the efficacy of their engagement”. Others “are willing and empowered to escalate but know/fear that doing so would alienate other investors in their engagement group, jeopardising their own standing in the initiative and among their peers.”

Kanzer concedes that these are relevant concerns.

“We are trying to build relationships and a vote against a board could damage this,” he says. “But if you have a clear public-facing voting policy that says ‘this is what we’re going to do’, I think it helps to resolve that concern.”

Wholesale reform

The memo sets out a series of recommendations to improve the effectiveness of CA100+, as well as calling for wholesale reform of the lead investor system.

It argues that the system is let down by individual leads refusing to demand strong climate performance or escalating, or being held back by co-leads or the broader engagement group, who they are unwilling to antagonise by escalating.

This in turn leads to a “substantial disconnect between the overall aims of CA100+ and its strong benchmark work, and how those standards translate into actual demands for change”.

To address this problem, Majority Action suggests that the initiative should switch from a single-company engagement approach to form “sectoral councils”. These councils would set out clear decarbonisation expectations for their sectors.

While individual investors would still continue their engagements, companies would also be offered meetings with council members to discuss their progress.

The NGO also recommends that participation in the initiative should be conditional on including voting provisions “empowering” investors to vote against directors and for shareholder proposals based on climate failures.

Finally, the memo calls for mandatory disclosure of votes cast at focus companies and sets out a series of enhanced expectations for lead investors if the sectoral council approach is not taken up.

Competition concerns

It explains in detail how CA100+ could implement the reforms without falling foul of competition laws. The initiative has come under sustained attack from Republican politicians in the US, who accuse it of potentially breaking antitrust laws, which it denies.

Eli Kasargod-Staub, executive director of Majority Action, tells RI that the initiative’s leaders “can and should take a proud and firm stance against those who are engaging in bad faith efforts to disrupt the ability of investors to exercise their fiduciary duties by holding boards accountable for responsibly undertaking the energy transition”.

He notes that, in its work around proxy voting policies, the NGO has always indicated that they should “empower rather than require” investors to take votes.

If CA100+ made adoption of these policies mandatory, he says, “that does not imply that it should require signatories to vote in any one particular way, but rather that in 2023 it’s no longer acceptable to be engaging in dialogue without accountability and the ability to engage in the necessary escalation”.

The CA100+ spokesperson says that the initiative is investor-led. While it welcomes feedback and suggestions from other stakeholders, the future strategy is set by the steering committee in consultation with investor signatories, they continue.

In response to the suggestion on requiring voting policies, the spokesperson says: “The use of particular engagement tools and tactics, including the scope of participation in Climate Action 100+ engagements, is at the discretion of individual signatories. Climate Action 100+ does not, and will not, have any baseline requirements related to voting.”