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‘It’s time ISS understood that we are in extraordinary circumstances’: the latest decisions from investors and proxy advisors

Round up: the latest on ESG-related resolutions

At first glance, it would appear that investors sided resoundingly with Shell on climate this week – its transition plan secured a massive 89% support from shareholders at its AGM on Tuesday. But on closer inspection, 30% of investors also supported a more ambitious proposal on climate from campaign group Follow This, calling for Paris-aligned targets. Given the obvious overlap, there is likely to be some confusion at the firm about how its strategy has really been received by shareholders. 

While 89% is high compared with many voting outcomes, it's actually relatively low compared to other ‘Say on Climate’ votes that have taken place this proxy season: Ratings giant Moody’s, French construction firm Vinci and Canadian National Railway all received near unanimous approval (although just 31% backed calls for the introduction of such a vote at Union Pacific last week). 

Meanwhile, the 30% support for the Follow This proposal is nearly double what the resolution secured last time it was tabled at Shell – despite public opposition from the company itself and some influential shareholders who say Shell’s 2050 Net Zero commitment has rendered the civil society demands unnecessary.  The Church of England Pension Board and CalPERS – both leading voices within Climate Action 100+ – voted against Follow This.

Other CA100+ members, including the New York City Comptroller, which oversees five public pension funds, and Dutch asset manager MN, which manages €87bn on behalf of Dutch metalworker pension fund PMT, supported the Follow This resolution (interestingly, New York City backed Shell’s proposal too, and voted against CEO Ben van Beurden). 

Sarasin & Partners was another supporter of the Follow This proposal. Head of Stewardship Natasha Landell-Mills told RI that, while she understands the logic of taking a “diplomatic approach and emphasising the positives” while engaging with firms like Shell, the need for urgent climate action must take precedence.

“I prefer that we take a precautionary approach to this and demand that we get urgent and early action,” she said, adding that Shell’s current Net Zero commitment is just a “headline”. 

Landell-Mills points to a recent note in Shell’s financial statements, flagged by its auditor EY, where it states its capital expenditure budgets and accounting assumptions are not in line with the Paris Agreement. “How can you say that Shell’s transition plan is Paris-aligned when they’ve just told you it’s not?” she asked. 

Ultimately, corporate transition plans should be benchmarked against Paris-alignment, argued Landell-Mills, even if that means voting against the majority of current transition plans.

Sarasin & Partners also voted against Shell’s Audit Committee Chair and against the company’s financial statements – part of what Landell-Mills describes as a necessary effort to hold boards accountable for climate risk using the “routine matters for the AGM”, such as the appointment of directors and auditors, and votes on financial statements. 

“The focus has tended to be on grand statements and commitments, which are of course important because then you have a lever to hold the board to account”, she said. “But then, if you're interested in delivery, probably the single most important thing that needs to happen is that the financial statements get aligned with Paris.”

All eyes on Exxon

The likelihood of an historic investor revolt at Exxon grew this week after proxy advisors Glass Lewis and ISS partially supported proposals to appoint four ‘climate competent’ directors. The high-profile plans have been put forward by activist fund Engine No 1 and, if successful, the nominees would replace four of Exxon’s existing board members. 

Efforts to push Exxon to address climate risks go back many years, over which time it has developed a reputation for being dismissive of the issue. Investors have been galvanising around Engine No 1’s campaign since it launched in December, with three of the US’ largest public pension funds – CalPERS, CalSTRS and New York State Common Retirement Fund – and the UK’s largest investor – Legal & General Investment Management – already loudly backing the nominees. 

The votes of Exxon’s three biggest shareholders, BlackRock, State Street and Vanguard, however, will be crucial. BlackRock in particular, which has increasingly talked up its commitment to sustainability and whose recent voting record has reflected a shift, will be closely watched on this key test at Exxon. 

Yesterday, Engine No 1 put out a statement refuting a number of “straw man arguments” and “fictitious” assertions reportedly made by Exxon about the campaign, a sign perhaps of how rattled the oil major is.

While support from Glass Lewis and ISS will no doubt influence the vote, it also prompted confusion over why both proxy advisors chose to support some of the nominees and not others. 

For instance, neither are advising a vote in favour of Anders Runevad, the former CEO of Danish wind turbine manufacturer Vestas. ISS does not explain its rationale, but Glass Lewis argues that the appointments of fellow nominees Alexander Karsner and Gregory Goff alone would be “sufficient”.  

Writing in RI last week, Edward Mason, who spent years engaging with Exxon on behalf of the Church Commissioners, urged investors not to ‘pick and choose’ from Engine No 1’s candidates. Such a move, he said would be a “cop-out”, and investors should back all four. 

The partial support by the big proxy advisors is the latest sign that they will encourage shareholders to hold directors to task over climate risks. Earlier this year, ISS updated its proxy voting guidelines for Europe, Middle East and Africa to include “material” environmental and social issues in its equation when deciding on director votes.

But Sarasin & Partner’s Landell-Mills described the wording of that update as “shockingly weak”. 

ISS stated in the new policy that “under extraordinary circumstances” it will “consider” voting against individual directors where there are “material failures of governance, stewardship, or risk oversight, including demonstrably poor risk oversight of environmental and social issues, including climate change”.

Landell Mills said that “it is time ISS understood that we are now in extraordinary circumstances”. “They recommend voting against a REMCO [Remuneration Committee] chair quite routinely, where remuneration isn't good enough, and yet to vote taking into account climate risk, which is an existential threat to the planet, seems to be beyond the pale. I find that just incomprehensible really,” she said. 

‘Racial equity audit’ proposal sees largest support at JP Morgan Chase, with 39%

Nearly 40% of shareholders backed calls for an independent ‘racial equity audit’ at JP Morgan Chase on Tuesday, according to preliminary results from CtW Investment Group, the union-backed investor behind the proposal. 

The proposal, which was filed at eight US financial heavyweights this year, asks the banks to commission a third-party assessment of its contribution to racial injustice. It has achieved impressive results in its debut proxy season, and the outcome at JP Morgan looks set to be the highest tally so far. 

“After a year of promises and grandiose gestures, the vote results show that shareholders want independent reassurance that JP Morgan’s pledges to became more equitable are actually effective in tackling discrimination within the company and externally,” said Dieter Waizenegger, Executive Director at CtW Investment Group. 

Amundi-backed antibiotics proposal goes to vote at McDonalds

A proposal on the environmental and public health costs associated with the use of antibiotics in McDonald’s’ meat supply chains goes to the vote today. According to studies by the World Bank and the UK Government, antimicrobial resistance could cause up to 10m deaths per year by 2050 and may decrease global GDP 3% by 2030, and almost 4% by 2050.

The resolution was co-filed by Europe’s largest asset manager Amundi and the University of Cambridge’s Trinity College, and LGIM has already disclosed its intention to support it.