Proxy advisors criticised over Rio Tinto climate advice

Comments come as UK investors get behind latest climate resolution at Shell

US proxy advisors ISS and Glass Lewis are under fire for not supporting the recent resolution at Rio Tinto, calling for increased transparency around its climate lobbying activities.
Shareholders in the Anglo-Australian mining giant sent a strong signal to the company at its AGM last week, when 18% voted in favour of the resolution. The vote, which is believed to be one of the biggest of its kind in Australian corporate history, outstrips the 10% achieved at rival mining firm, BHP Billiton last year.
But RI has learned that both ISS and Glass Lewis recommended a vote against the resolution in its advice to clients.
Adam Matthews, Head of Engagement at the Church Commissioners – one of the resolution’s co-filers – expressed his “unhappiness” at the position taken by the proxy firms and questioned their lack of “consistency” on climate change.
“They weren’t looking at it in the same way they were looking at other resolutions on climate change in other countries,” he told RI. “We’ve raised concerns with our provider, ISS, about this and we are going to continue a dialogue with them and I know other funds have raised concerns over this with Glass Lewis on this too.”
Matthews added: “This was a well-worded resolution, it wasn’t asking for unreasonable things, it wasn’t overstepping the bounds of what a shareholder can rightfully expect, and what a company can rightfully expect in terms of their getting on and running the company”.
The resolution was co-filed by Swedish pension fund AP7, the Church of England Pensions Board and Australian superannuation fund Local Government Super, which have a combined holding of 0.24% of ordinary shares in Rio Tinto. It called on the firm to review and fully disclose its relationships, and their associated costs, with industry bodies such as the Minerals Council of Australia (MCA). 
ISS said the proposal “has merits”, but advised voting against because it would require a “broad” amendment to Rio Tinto’s constitution “and support is not considered warranted on that basis”. ISS also argued that the company’s board had already “has taken a number of steps and made commitments to continue to engage and improve transparency and disclosure”.
“Although not a full commitment to the proposal, the Board has explained its arguments and its actions and commitments thus far are considered positive,” ISS said in its report on the topic.Matthews suggested that the proxy advisors gave “greater weight” to what they heard from the company, rather than “actually engaging with some of the detail here and understanding that this is the kind of resolution that, I expect, a large and growing number of funds would actually expect them to be suggesting one might support”.
When asked for comment, Glass Lewis directed RI to its advice documents for the Rio Tinto vote, in which it acknowledged the potential “reputational risks” that membership to such associations carries but ultimately concluded that the resolution was not “necessary at this time” as the company’s current disclosures are “comparable” to its peers. 
In contrast, the Australian Council of Superannuation Investors (ACSI), the investor membership body whose 38 members collectively manage over A$2.2tn (€1.38tn) in assets, supported the resolution in its advice to members, referring to it “as a critical issue for long-term investors”.
ACSI called on Rio Tinto to match BHP Billiton’s level of transparency: Rio Tinto’s rival responded to a 2017 resolution on the issue by conducting a review into “material differences” in its “climate and energy policy” with that of the 21 industry associations it was a member of.
Australian ESG research and engagement firm Regnan told RI that it also backed the resolution at Rio Tinto, questioning in its advice the economics of Rio Tinto funding efforts seeking “to produce outcomes contrary [to its] … own policy positions”.
On another key climate vote this season, the Church Commissioners, Church of England Pension Board and the UK’s Environmental Agency Pension penned a joint letter
last week stating their intention to vote in favour of the Follow This resolution at Shell. The resolution requires the oil giant to publish targets for its Scope 3 emissions (those arising from the use of Shell’s products) and publish targets aligned with the Paris Climate Agreement. Shell’s annual meeting is set for the 22 May. The UK investors join growing support for the proposal: last month, Dutch investors Aegon, Pensioenfonds van de Metalektro and Actiam said that would get behind it, with Pensioenfonds Detailhandel also expecting to vote in favour.