Church pension calls for PRI to host meeting on proxy firms’ climate change recommendations

Says proxy firms’ “inertia” threatens investor climate initiatives

The Church of England Pensions Board has called for the Principles for Responsible Investment to convene a meeting about proxy advisory firms’ advice on shareholders’ climate change proposals, saying systemic “inertia” threatens investor initiatives such as Climate Action 100+.

It has criticised US proxy advisors Glass Lewis and ISS for not supporting the climate lobbying proposal it co-filed at Anglo-Australian miner BHP, arguing that it “raises serious questions” about how investors can use such advice and meet their fiduciary duties around climate risks.

As a result, Adam Matthews, Head of Ethics and Engagement at the Church of England Pensions Board, has called upon the PRI to convene a high-level meeting of “climate aware asset owners” and the heads of the proxy firms to “discuss a fit for purpose approach climate change voting”.

He told RI that the decision by the two largest proxy firms not to support the BHP resolution “raises serious questions about how investors can receive advice that enables them to meet their fiduciary duties to navigate the financial risks posed by climate change”.

“Our fear is that continued inertia in the proxy voting system will ultimately prevent the objectives of key engagement interventions such as Climate Action 100+ being achieved,” he added.

PRI Chief Executive Fiona Reynolds told RI the body would be “very happy” to facilitate such a meeting.

This is not the first time Matthews has criticised the proxy advisors; In 2018, he questioned Glass Lewis and ISS’s lack of consistency on climate change when both firms failed to support a climate lobbying proposal at BHP’s rival Rio Tinto. That resolution was backed by 18% of shareholders.

A similar resolution a few months later at Australian energy giant Origin, which was supported by the proxy advisors, was backed by a record 46% of shareholders – an indicator of the influence of the firms’ advice.

Though ATP, the Danish labour market pensions scheme, revealed in its recently published 2019 stewardship report that it voted against ISS advice on 18% of all proposals
presented at general meetings. It comes as Norges Bank Investment Management has committed to pre-disclosing all its voting intentions.This year’s resolution at BHP called on the mining giant to ditch trade bodies that are undermining the Paris climate agreement.

It is the second climate lobbying proposal the company has faced in as many years, though this year’s is markedly stronger than the one filed in 2017, which had called on BHP to compare its trade associations’ position on climate change with its own in a review.

Both proposals were organised by the Australasian Centre for Corporate Responsibility (ACCR), the not-for-profit shareholder advocacy group and prolific filer of ESG proposals.

BHP has come under continued pressure over its membership of trade groups like the Minerals Council of Australia (MCA), which have repeatedly called for coal-friendly policies.

Matthews told RI that corporate funding of lobbying, fuelled with shareholder funds, is “continuing at pace”.

“In BHP’s case, changes that were promised in 2017 have not been delivered: namely that trade bodies should cease lobbying where its members are not aligned (this was the third principle of BHP’s 2017 Industry Review). Not one industry association has done so. Instead sophisticated, sustained and impactful negative lobbying remains evident,” he said.

UK-based governance advisory firm PIRC supported both the lobbying resolution and the accompanying resolution to amend BHP’s constitution, which is required in Australia for the resolution to be heard.

ISS, which increasingly has sought to position itself as an ESG house with a raft of acquisitions over the last several years, declined to comment on the Church’s criticisms and pointed to what was contained in its report on BHP.

But Aaron Bertinetti, Glass Lewis’s Senior Vice President of Research and Engagement, told RI that “climate change is a very serious and material issue, but it is not the only issue that is of concern or required to be considered by fiduciaries”.

“Any investor that determines the quality of a proxy advisor’s advice based solely on whether one is ‘for’ or ‘against’ a proposal, with no regard for the extensive analysis, reasoning, expertise and engagement that such advisors conduct on behalf of their clients, raises serious concerns about their ability to meet their own regulatory and fiduciary duties,” Bertinetti added.