September 30, 2021

Say-on-Climate: Could it be Say-on-Pay All Over Again?

Shareholder proposals relating to the environment had a big year during the 2021 proxy season. As noted in D.F. King’s Proxy Season Review and Fall Engagement Guide, nearly half of all environmental proposals that made it onto ballots this year received majority shareholder support, compared to none just two years ago. Requests for climate change reporting received the highest number of submissions, as well as the highest number of proposals in this category that received majority shareholder support, followed by proposals requesting reporting or targets for GHG emissions. 80% of the GHG emissions-related proposals that made it onto ballots received majority shareholder support this year.

The breakout star of environment proposals in 2021 was the Say-on-Climate proposal. This proposal requested an annual advisory vote on a company’s climate-related plans. One say-on-climate proposal received majority shareholder support. The proposals received a lot of attention in 2021 and, as a result, they are likely to be featured in future shareholder proposal campaigns. This raises the inevitable comparison, could Say-on-Climate evolve into a universal requirement like Say-on-Pay?

It is easy to forget that, prior to the enactment of the Dodd-Frank Act’s Say-on-Pay requirement in 2010, the concept of getting an annual advisory vote on executive compensation had started in the United States as a shareholder proposal campaign. Following the lead of the Say-on-Pay votes that had been instituted in the United Kingdom and some other jurisdictions, shareholder proponents begin submitting Say-on-Pay resolutions to U.S. public companies in 2007, as concerns about excessive executive compensation reached their peak and new SEC rules went into effect requiring more comprehensive disclosure about executive compensation. By 2009, in response to the financial crisis, Congress picked up the baton and mandated Say-on-Pay votes for certain financial institutions, and the broader Say-on-Pay mandate took hold when the Dodd-Frank Act came together one year later.

One of the things that clearly facilitated the rise of Say-on-Pay proposals was the 2006 executive compensation disclosure rule changes, which established CD&A and more detailed compensation disclosures. By comparison, we could see how Say-on-Climate proposals could benefit from SEC-mandated disclosures on climate change risks, which we are expecting to see from the SEC in the near future.

While it is too soon to tell what path Say-on-Climate proposals are on, companies should be monitoring their progress and considering their ultimate impact, much like we did with Say-on-Pay proposals back in the 2000s.

– Dave Lynn