Say on Climate: The case for voting ‘no’

The power of ‘Say on Climate’ votes will be lost if they don’t transcend the investor reflex to endorse incrementalism, says Brynn O'Brien

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It is an AGM season with a twist. Who could have predicted that, in 2021, shareholders in heavy emitting companies across several major markets would be voting on detailed climate transition plans? Only Sir Chris Hohn, perhaps. After all, ‘Say on Climate,’ as the initiative is widely known, is his brainchild. 

But here we are: shareholders at 13 companies, including Glencore, Shell and Total, will vote on those companies’ plans before the end of May.

Given how quickly Say on Climate has emerged, there is understandable confusion and conjecture about what it is and what it does, from both companies and their shareholders.

These are legitimate questions, and they cannot be answered in a vacuum. The context of where we are in history, in relation to atmospheric greenhouse gas concentrations, is crucial. 

This month, carbon dioxide has reached a critical record: at a concentration of 420 parts per million, we are halfway to a doubling of pre-industrial levels.

We can be confident that if our emissions trajectory does not bend downwards, and fast, we are headed for misery. Research published last year by Swiss investment bank J Safra Sarasin estimated, after analysis of the climate commitments of over 6,000 companies, that we are headed for a 4°C temperature rise by the end of the century. It is a secondary point, but one worth making, that no manager of a diversified portfolio can confidently predict they will deliver strong returns at 4°C.

We are running out of time to avert climate chaos. As investors, every arrow in the engagement quiver must now be aimed squarely at rapid, worldwide and economy-wide decarbonisation. 

There is a strong case for the forceful and strategic deployment of investor Say on Climate voting, to compel or perhaps impel that decarbonisation. These active verbs have been used deliberately. To date, many investors have preferred subtler tactics; to ‘encourage,’ or ‘suggest’, or ‘persuade’. Praising incremental progress has become a reflex for some institutional investors. While a source of frustration for climate campaigners, this too is understandable. Steps forward have been made, and investors have lacked an agreed performance standard to hold companies to account. They have lacked clear lines on what is acceptable, on what is enough. 

The Climate Action 100+ Net-Zero Company Benchmark, published in March of this year, has changed all that. The Benchmark shows, company by company for each of the initiative's 167 targets, the distance to travel. The level of detailed expert analysis provided by the Benchmark’s ten indicators drives – compels – the investor-company conversation to where it needs to be.

It does not simply wave through 2050 Net Zero targets. Investors now need to know if and how carbon-intensive companies like Shell, which has just published the Energy Transition Plan that will be subject to a vote at its AGM on 18 May, will deliver absolute emissions reductions in the next 10 years. For the climate, action in this next decade matters, and for investors this is the period in which investment decisions can drive change.

It is difficult to see how any objective, climate-aware investor, upon reading Shell’s plan, would even remotely entertain the possibility of taking the pressure off. The plan hides behind intensity targets and an unacceptably broad range of potential emissions outcomes to 2030, and contains no meaningful reduction in Shell’s capital investment in fossil fuels. 

Investors have lacked an agreed performance standard to hold companies to account… The CA100+ Net-Zero Company Benchmark, published in March, has changed all that.

Shell has pleaded with its shareholders to endorse its plan as ‘reasonable’ and ‘in-step with society’. Investors should resist any urge to prematurely pull out the rubber stamp. 

We can assume that a ‘no’ vote of even 10% will come with a level of discomfort for both company management and their shareholders. And that is good: discomfort is the Petri dish of change. Investors have legitimate concerns about causing so much discomfort that negotiations are abandoned or board access is lost. But a ‘no’ vote would be no cause for that; companies regularly receive sizeable protest votes on remuneration with no diminution of their access. To the contrary, a strong ‘no’ vote would inject strategic discomfort into the environment in which further negotiations will occur.

Anyone who understands both the science of climate change and where we are today has doubts about whether we can muster the collective will to take the action required. We must allow our doubts to be large right now, allow them to sit heavy, allow them to be seen.

In this moment, through Say on Climate votes, investors have not just the opportunity but the duty to register their doubts publicly. A ‘no’ vote on Say on Climate for companies that pull up well short of the clear expectations set out in the Climate Action 100+ Benchmark is the strategic option.

Brynn O'Brien is the Executive Director of the Australasian Centre for Corporate Responsibility