Say on Climate: It’s won over investors, NGOs and even corporates. But will it work?

RI takes a look at one of the biggest new voting trends this AGM season

There can be little doubt that the ‘Say on Climate’ campaign has momentum. In less than six months, since its launch by UK hedge fund manager Sir Chris Hohn and his firm The Children’s Investment Fund (TCI), at least 15 companies – including FTSE 100 giants Rio Tinto, Glencore and Unilever – have voluntarily adopted some form of shareholder vote on their climate plans.

Before the campaign was launched in earnest, Hohn tested the concept by filing what would be the first Say on Climate proposal, at Spanish airport operator Aena – on whose board he sits and with whom he had been engaging with for a number of years on climate.

That call for an annual vote on the state-owned firm’s transition plans was a huge success, receiving near unanimous support, including, crucially, from investment behemoths Blackrock and Vanguard, and the world’s largest proxy advisors ISS and Glass Lewis. Just days after the vote at the annual meeting in October, Aena agreed to amend its bylaws and install an annual advisory climate vote. A precedent was set. 

Stripped down to its bare bones, the Say on Climate campaign calls on firms to take three steps: 

  1. Provide an annual disclosure of emissions
  2. Present a plan to manage those emissions
  3. Hold a vote on the plan at their annual meeting

The advisory vote is a key part of the initiative and helps create “pressure in all directions”, says Michael Hugman, Director of Climate Finance at the Children’s Investment Fund Foundation (CIFF). 

“Annual advisory votes on their own won’t necessarily drive change at all companies, but what they do is bring everything into the open, which raises ambition for both the companies and the asset managers that are stewarding them”, he says.

Ultimately, Hugman concludes, the campaign is “seeking to foster a more activist investment community when it comes to engagement”.

Proposals this year have been filed at companies in Australia, the US and Switzerland. 

Many have already been withdrawn in response to concessions made by firms (spooked, perhaps, by the level of support at Aena). 

Few, if any, firms have explicitly offered shareholders an annual vote on climate plans like Aena did, though.  

The Australian Center for Corporate Responsibility (ACCR), for example, has withdrawn proposals at Aussie oil & gas companies Santos and Woodside after they agreed to give shareholders a climate vote at their 2022 AGMs. In other words, just one vote. However, ACCR’s Executive Director, Brynn O’Brien, tells RI that she understands it has been made clear to both firms by “an influential handful of institutional investors” that the “expectation is that a climate vote will be an annual exercise”.

Similarly, in Switzerland, Ethos Foundation has withdrawn its proposals at food conglomerate Nestlé and building materials firm LafargeHolcim after they agreed to allow a vote on their climate plans – Nestlé this year and LafargeHolcim next.

Ethos’ CEO Vincent Kaufmann describes the votes on the companies’ climate roadmaps as a “compromise”. “For us”, he says, “it’s insufficient. We really want to be able to vote every year – not only on the strategies, but more importantly on the progress made towards ambitious targets”.  He tells RI that it is not yet clear whether the firms intend to offer the vote annually, and says Ethos may have to engage further on the topic.  

In the US, Say on Climate proposals have been filed at a number of firms including Alphabet, Monster Beverages and Union Pacific. Rating giants Moody’s and S&P have already agreed to a climate vote. 

“Where companies are failing to set compelling net zero targets, backed up by clear capital expenditure strategies and supportive accounting, then directors should be held accountable” – Sarasin's Natasha Landell-Mills

But this is just the start. Shareholder advocacy body As You Sow, which is behind many of the proposals in the States, said in a recent report that it “plans to file hundreds of [Say on Climate] resolutions in the next two years unless companies voluntarily adopt the initiative”. 

So the campaign seems to have captured imaginations across the globe, but what difference will it make?

Well, according to renowned governance specialist and Oxford scholar Bob Eccles, very little. In a Forbes article in January, he described the initiative as well-intentioned but “futile” – a “drain on the engagement bandwidth of investors who have more effective tools for getting their portfolio companies to mitigate and adapt to climate change”.

Eccles sees the campaign as yet another disclosure initiative, when what’s needed is votes against directors. 

“As with pay, if investors are really serious about climate, they should vote against directors regarding issues such as capital expenditures and lobbying that are counter to the Paris Agreement”, he writes. 

Dan Gocher, ACCR’s Director of Climate and Environment, agrees with Eccles in principle – that votes against directors are needed – but says that it “simply is not happening”. Gocher points to the fact that no directors have been removed over climate, even at the likes of US oil giant Exxon, which arguably “deserves it more than anyone”. 

His impression is that investors, rightly or wrongly, do not feel they can vote against directors without more evidence to justify their decision (“they want the meat in the sandwich to be able to say here is the reason we’re voting against you”). The disclosure of, and voting on, climate plans potentially creates a pathway for this, Gocher says. 

In Hohn’s response to Eccles, he echoes this sentiment, pointing out that “ad hoc voting without public explanation against individual directors has so far failed to deliver results''. What is needed, he continues, is “sustained shareholder pressure through systematic engagement and voting, based on evidence”.

He adds that the next step, when climate plans are rejected, is for investors to “vote against directors of companies in order to force an improvement in their performance”.

Natasha Landell-Mills, Head of Stewardship at Sarasin & Partners, tells RI that, while these new votes on climate plans “can be a powerful tool” for pushing companies in the right direction, they “must not divert, or indeed delay, attention from ensuring director accountability”. 

“Where companies are failing to set compelling net zero targets, backed up by clear capital expenditure strategies and supportive accounting, then directors should be held accountable”, she says.

CIFF’s Hugman also rejects the notion that Say on Climate is just another disclosure initiative, as Eccles argues. He describes it instead as a framework that can help “unlock” the power of existing disclosure initiatives like the Task force on Climate-related Financial Disclosures and Climate Action 100+’s recently launched corporate benchmark, by adding an accountability mechanism (i.e. a vote), which encourages investors to scrutinise, compare and judge companies plans on a regular basis.

“The financial system is one that is built on norms and precedents and that’s what we’re seeking to do, raise the ambition of norms that are in the market around auditing Paris-aligned climate plans”, Hugman says.

Eccles also points to what he describes as the failure of the ‘Say on Pay’ initiative, particularly in the US. That initiative gave shareholders an analogous advisory vote on remuneration, but Eccles says, for the most part, it “has served to insulate directors for accountability on pay” and he suggests Say on Climate is likely to go the same way.

But Hohn argues in his response to Eccles that the analogy is not a good one, as “higher pay may be justified [under some circumstances] but increasing emissions intensity can never be”. 

As part of the ‘Say on Climate’ campaign, TCI and CIFF are investing in civil society in a bid to ensure NGOs can help with the assessment of corporates’ climate plans and keep the investors stewarding them on their toes.

The level of support for the proposal at Aena hints at more victories for Say on Climate, but the question remains as to what investors will do once they’ve won the right to vote. Will they use it as a springboard to voting against directors in instances when climate plans aren’t good enough to warrant their backing? Or will climate votes become an excuse not to escalate things up to the board for the next few years?