Shareholder rights in Germany have suffered a setback after a regional court dismissed a legal case brought against Volkswagen by European pension funds over their right to file a climate lobbying proposal at the German carmaker.
In October, six investors, including Swedish government pension fund AP7 and the Church of England Pensions Board (CEPB), began legal action against Volkswagen after the company again refused to table their disclosure-focused climate lobbying proposal, arguing that the topic was beyond the competence of shareholders.
In its decision, dated 8 May and shared with Responsible Investor by AP7 this week, the higher regional court of Braunschweig denied the investors the right to appeal its decision that their proposal was not permissible.
A key issue for the court was that it believed the request could go beyond simply seeking greater transparency and influence the board’s strategy.
“If the executive board is obliged – as in this case – to report on climate change-related lobbying activities and to explain how these activities serve to reduce risks for the group companies from climate change and how they contribute to the fulfilment of the goals of the Paris Climate Change Agreement of 12 December 2015, it is only superficially an act of transparency,” it stated.
Under German law, shareholders are not permitted to give detailed instructions to the boards of companies. Shareholders are, however, allowed to amend firms’ articles of association via shareholder proposals.
Emma Henningsson, AP7’s manager, active ownership, told RI that the Swedish fund “fundamentally disagrees” with the court’s position.
“[T]he court believed that our resolution was aimed at influencing the management board’s decisions on climate-related strategy – which would contravene German business law. This logic doesn’t follow – by extension, this would mean every single reporting duty in existence would unduly influence strategic decision-making by management.”
But she added that the judgement did provide some “helpful commentary” on how future shareholder resolutions could be drafted.
The ruling also does not prevent future legal action if German companies refuse to table similar resolutions.
Henningsson described the denial of an appeal as “a missed opportunity for the federal court to clarify the law on minority shareholder rights”.
“It also sends a worrying signal to global investors over the corporate governance architecture in the region,” she said.
Despite refusing to table the investors’ climate lobbying proposal, Volkswagen published the first review of its trade associations last month.
The company spoke positively about the review – and the process behind it – stating at the time that it was “a good instrument for evaluating the alignment between [our] positions and those of associations on the subject of climate protection”.
Ahead of Volkswagen’s annual meeting last month, CEPB, which leads engagement with the company as part of Climate Action 100+, pre-declared its intention to vote against the company’s management and supervisory boards for the second year in a row, in response to its failure to meet expectations around climate lobbying and emission reduction targets.
AP7 also voted against Volkswagen’s whole board, as it has done for several years, mainly in response to the firm’s management of the diesel-gate scandal.
Henningsson told RI that AP7 considers the publication of the lobbying review to be a “successful outcome of engagement and escalation measures”.