Article originally published in November 2021 issue of ProxyInsight. Written by Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM Investments and current chair of Climate Action 100+ global Steering Committee, and Anne Simpson, Managing Investment Director, Board Governance & Sustainability at CalPERS and member of the Climate Action 100+ global Steering Committee.
2021 has been a remarkable year for shareholder action on climate change. Investors secured historic results, accelerating the decarbonization of the world’s largest corporate greenhouse gas emitters through new net-zero commitments, replacing directors, and aligning political lobbying with the Paris Agreement. The progress shows what investors can achieve and Climate Action 100+ is raising its game.
As investors, we know we can and we must turn the financial tide and drive meaningful decarbonization by stepping up the intensity of our engagements with companies. We are not alone in this viewpoint. The Climate Action 100+ initiative now includes more than 615 investors responsible for over $60 trillion in assets under management.
A PROXY SEASON TO REMEMBER
There was extraordinary growth in climate-related shareholder resolutions in the 2021 proxy season, as investors demonstrated their willingness to use these as an effective means of securing more ambitious targets from companies. In the U.S., there were over 147 climate-related resolutions filed, with 47 going to a vote and support averaging 40%. Six out of 14 shareholder proposals filed by Climate Action 100+ investor signatories and flagged by the initiative won majority support, according to Proxy Insight Online data.
TURNING COMMITMENT INTO ACTION
To provide a transparent and objective way of measuring company progress, Climate Action 100+ launched the first iteration of its Net-Zero Company Benchmark in March. This provides the foundation for company engagement coordinated through the initiative, and the assessments have become a widely-cited demonstration of the progress companies are making in aligning to a net-zero future.
To date, 111 of the systemically-important emitters on the Climate Action 100+ focus list have responded to this call from from investors by setting net-zero targets. But there is still much more work to do and investor signatories are engaging intensely with companies on improving their alignment ahead of the next round of assessments in March 2022.
Climate Action 100+ launched a new sectoral program this year, looking at the actions that companies, industries as a whole and investors in carbon-intensive sectors must take to accelerate the pace of the net-zero transition. But decarbonisation isn’t a ‘one size fits all’ approach. The strategies published so far for the aviation, steel, food and beverage, and electric utilities sectors aim to provide sector specific detail and clarity. In the coming months we’ll be working on sector strategies for the remaining sectors that are vital to the transition.
RAISING THE BAR IN 2022
Climate Action 100+ recently published an updated framework and indicators for the next iteration of the Net- Zero Company Benchmark company assessments, which will be released in March 2022. The new and updated indicators reflect the evolving priorities of investors, with a new climate accounting and audit indicator representing the increased focus around incorporating climate risk in financial accounts. In addition, the inclusion of a just transition indicator assesses the impact of a company’s net-zero transition on its workforce, communities, and supply chains.
Building on the strong results from this year, we expect there will be a laser focus on how company net-zero goals are being met with short-, medium-, and long-term emissions reduction targets, and we anticipate more resolutions on integrating climate risk into financial accounts. We also expect to see more companies producing transition plans and putting these to shareholder advisory votes.
Where we don’t see the required progress being made from companies, the next step is to ask directors to respond to these challenges and bring about the required change. This year, investors demonstrated their willingness to hold boards to account on climate change, in particular with the election of three new directors at Exxon Mobil.
None of these are small challenges but if we can build on the momentum that was achieved this year, we are hopeful we can drive further alignment with the goals of the Paris Agreement. As fiduciaries, with a duty of prudence, loyalty, and care, we expect nothing less than the companies across our portfolios to manage the risk and find the opportunity that the transition to net-zero will bring.