This week, RI will publish four interviews with regional leaders for the investor engagement initiative Climate Action 100+ (CA100+), to hear their reflections on the project so far, and find out what its future looks like.
When CA100+ launched in December 2017, the founders gave it five years to reach its goal: for investors to work with more than 100 of the world’s biggest emitters to move them towards Paris-alignment. More specifically, getting company boards to appoint climate experts, set emissions targets, report in line with the Task Force on Climate-related Financial Disclosures, rein in anti-climate lobbying, and factor climate into pay packages.
The interview series was intended to mark its halfway point, but it seems it may be premature…
"For all the talk of shareholder primacy in the US, there’s not been a regime of shareholder rights. The governance strategy has been sell or sue for a long time" – Anne Simpson
“We are planning to discuss whether we need to extend the timeframe,” says Anne Simpson, one of the brains behind the project. Simpson was Director of Sustainability at $326bn Californian public pension fund CalPERS (she is now its Managing Investment Director) when she helped set up CA100+ and is the representative for North America on its steering committee.
“When we were setting this up, we knew it had to have a beginning, a middle and an end, so we could clearly chart progress. And we needed proof of concept – we needed to test whether this was going to get results, and whether we would get a sufficient level of capital to back us. The answer on both counts has been yes. So, now we know that, we don’t want to leave until we’ve got the job done.”
The capital backing CA100+ now stands at some $40trn, run by more than 450 asset managers and owners. The successes Simpson is referring to, in the North American context, include a big win on climate lobbying at Chevron, and commitments to be Net Zero by 2050 from major utilities like Duke Energy, Dominion and Southern Company, as well as auto giant Ford Motors.
“We’ve continued to have companies making commitments even after the [COVID-19] pandemic broke,” Simpson observes. “Which shows the flywheel is now moving on this, and we aren’t going to be knocked off track.”
The US, she concedes, is not an easy market for engagement when compared with Europe.
“For all the talk of shareholder primacy in the US, there’s not been a regime of shareholder rights. The governance strategy has been sell or sue for a long time,” she says, adding that CalPERS and other big investors have had to lay down some serious groundwork over recent years to allow CA100+ to achieve its objectives in the States.
“Under Delaware law, the default position is that you can’t vote against the re-election of board members,” she continues, in respect of the state’s plurality voting system for companies. “The proxy card will show an option for voting ‘yes’, and if you don’t agree, your only option is to ‘withhold’ – in other words: sit on your hands. We’ve worked hard with other investors to introduce ‘majority voting’ across major companies, so investors can just say ‘no’ when needed. That’s essential to board accountability.”
One of the most high-profile companies at which majority voting has been introduced as a result of these efforts is Exxon. In addition, CA100+ investors have secured proxy access at the oil major, allowing them to put forward board candidates themselves, and – after more than one attempt – a commitment to disclose climate risks.
CA100+ appoints investors to lead on engagement with each target company based on regional knowledge and size. So, for example, CalPERS is co-lead on eight companies in Japan, but works closely with the country’s giant government pension fund, GPIF, and Japanese asset managers, to ensure its stewardship is effective.
“That coordination of the investor community has turned out to be just as critical as the actual engagement with the companies,” reflects Simpson. She says it is particularly important in some Asian markets because of the newness of engagement practices.
But this coordination isn’t always visible in the voting results: CA100+ has come under fire repeatedly for voicing the lofty ambitions of its members, and then seeing those same members vote against climate proposals put forward at companies as part of the initiative.
Last September, Adam Matthews, Head of Ethics and Engagement at the Church of England pension fund, and a leading voice for CA100+, vented his frustrations on LinkedIn, claiming: “European Asset Owners are being let down and some funds are free riding on engagement of others through CA100 whilst undermining it by not voting for climate resolutions.”
“It’s a question that gets asked a lot – why don’t you require everyone to vote in one direction?” acknowledges Simpson. “But we have to strike a very delicate balance between all this collective action and allowing each signatory to operate as an independent fiduciary, because otherwise we risk becoming a ‘group’,” she says, referring to long-standing rules that prohibit shareholders from acting in concert.
“If we were a lot smaller, we could have gone for the ‘small but mighty’ approach, and agreed to a whole load of detailed outcomes ahead of time. But once you’re at the size we are now, you have to be absolutely clear that, legally, decisions and actions are being taken by each fiduciary individually.”
She explains that CalPERS has used the US regulatory system to issue proxy solicitations, asking other shareholders to vote in favour of CA100+-aligned resolutions. “But you can’t just go around willy-nilly telling people ‘we think you ought to do this and that’”.
All signatories are given documents that outline specific expectations from CA100+ members when they join, to make it clear “this isn’t like signing a petition or a letter – it means something specific,” she continues. “But the issue then is reviewing the progress of the investors, so that we know that people have delivered what they signed up to.”
When asked if CA100+ would consider delisting signatories that weren’t pulling their weight, Simpson said it was “currently not a point of concern”, adding that there is “something of a stewardship learning curve involved for certain signatories”, which requires support, rather than rejection, in response.
As for the companies themselves, it is only possible to get off the CA100+ target list by going bankrupt or being bought out. But there is an option to add more companies as time goes on.
“Now that we have reached this size, we can start tackling some of the most challenging companies in terms of markets and ownership structures,” Simpson says, in reference to firms that are state-owned or operate in markets with less developed regulation on shareholder rights. “And that opens up another question: now that we're really moving with all of that, what are the new companies that need to be introduced onto the list?”
She’s careful to add that resource limitations mean CA100+ can’t conquer everything immediately, but areas like the financial sector are “increasingly important and need to be addressed” – if not by CA100+, then by a similar initiative.
“We have big ambitions, but we have to be humble about what still needs to be done. The main thing is this, though: we aren’t sitting on the sidelines anymore. We’re mainstream.”