Investors ‘demanding’ Say on Climate votes at European firms

Proxy solicitation firm’s head of corporate governance UK/EU tells RI that investors are warning companies to offer votes on transition plans or face director opposition.

Investors are warning European firms to offer shareholder votes on transition plans or face director opposition, according to Daniele Vitale, head of corporate governance Europe and UK at proxy solicitation firm Georgeson.  

Vitale told Responsible Investor that for the first time the firm “is hearing investors say, ‘We are demanding a Say on Climate vote and if you do not put one forward, we will be taking action’”. 

This action could be a vote against a director or opposition to another item on the ballot at the annual general meeting to indicate their unhappiness.  

Vitale told RI that this kind of engagement and message “could clearly have an impact on director elections in the future”. 

In March, Legal and General Investment Management revealed plans to file shareholder proposals at companies failing to put “suitably ambitious and credible transition plans to a shareholder vote”, starting next year. 

Georgeson published its 2022 European AGM Season Review on Thursday. The report covers the UK, the Netherlands, Germany, Spain, France, Switzerland and Italy.

The US-based firm revealed that, while the number of Say on Climate votes has tripled this year to 36, average support for corporate climate plans is so far running at 91 percent, six percentage points below last year’s level. 

The best-supported plan in 2022 was put forward by Scottish energy firm SSE (98.9 percent) and the worst-supported one was from Anglo-Swiss miner Glencore (76.3 percent). 

Georgeson also revealed how influential proxy advisers ISS and Glass Lewis have shifted stance on Say on Climate votes this year.  

ISS was found to have “ceased to be unanimous in its support” for climate plans, issuing its first recommendations against corporate proposals from Glencore and Equinor. Glass Lewis recommendations both for and against Say on Climate proposals dropped this season, with the share of abstain recommendations rising from 8 percent to 19 percent.

Since the launch of the Say on Climate initiative – the brainchild of Chris Hohn and his UK hedge fund The Children’s Investment Fund – concerns have been raised that the vote could become an “ineffective compliance mechanism”, akin to the Say on Pay vote in the US, leading to the rubber-stamping of inadequate plans.    

But Vitale said that, based on Georgeson’s experience, “the majority of investors, particularly in Europe, are keen on Say on Climate votes”. 

The varying enthusiasm for Say on Climate could be due to the different experience of votes on pay in Europe and the US.  

“There is maybe a perception among investors in the US that Say on Pay votes have not been particularly effective in restricting executive pay,” says Vitale. By contrast, in Europe and the UK there is evidence that remuneration votes have been “more effective in improving the levels of disclosure and potentially improving average levels of pay”. 

“The consensus that we’re seeing in Europe from the investor community is that Say on Climate votes will generally encourage better engagement, better disclosure and generally better practices.”  

Anecdotally, Vitale says investors are seeking greater accountability from boards on climate oversight. “It’s very clear that investors in the past year or two are starting to tell companies that they want to know who on the board is responsible for climate issues, and that they will consider voting against specific directors if they are unhappy around climate commitments, climate disclosures, etc.” 

ESG is being brought up by investors in relation to executive remuneration, Vitale added, specifically when it comes to “variable pay, annual bonuses and whether long-term incentive plans should include performance metrics that are tied to ESG targets”. 

He said: “We can say that both director elections and executive remuneration votes also now have an ESG dimension that they did not have in previous years.”