June 14, 2022

Climate Reporting vs. Say-on-Climate: Diverging Outcomes

Last week, a shareholder proposal requesting an annual report on climate passed with 96% approval at Caterpillar (hat tip to Maynard’s Bob Dow for alerting us). Management recommended in favor of the proposal (see page 52 of the company’s proxy statement). Specifically, the proposal called for:

Shareholders request that Caterpillar issue a report within a year, and annually thereafter, at reasonable expense and excluding confidential information, disclosing interim and long term greenhouse gas targets aligned with the Paris Agreement’s goal of maintaining global temperature rise at 1.5 degrees Celsius, and progress made in achieving them. This reporting should cover the Company’s full scope of operational and product related emissions.

It’s becoming more common for the board to support shareholder proposals or choose to not make a recommendation, according to a recent report from Georgeson that I blogged about last week on our Proxy Season Blog. It’s unclear what the long-term consequences of that approach will be for companies – goodwill amongst shareholders? More proposals? Additional disclosure & scrutiny? For now, the most immediate result is that some shareholder proposals are achieving a very high level of support.

Some are viewing this result as favorable for “say on climate.” But this type of proposal is slightly different than “say-on-climate” – so the voting results don’t tell the whole story for that angle. As the say-on-climate proposals were emerging in fall of 2020 and during the 2021 proxy season, I blogged about early misgivings among investors. Just in the past few weeks, Vanguard updated its “Perspective on Say-on-Climate Proposals” to say:

– At this time, Vanguard does not proactively encourage companies to hold a “Say on Climate” vote given the lack of established standards or widely accepted market norms that govern these votes.

– When a company chooses to hold a “Say on Climate” vote, Vanguard expects the board to provide clear disclosure of the rationale for the vote, to articulate the oversight mechanisms and implications of the vote, and to produce robust reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework.

– Vanguard does not seek to direct company strategy. We view “Say on Climate” votes as a signal on the coherence and comprehensiveness of the reporting and disclosures a company provides to explain its climate plan to the market, rather than an endorsement of, or an expression of lack of confidence in, the plan itself.

This Insightia blog notes that investors, asset managers and proxy advisors continue to worry that plans are just another path to greenwashing – winning high support even though they aren’t clearly aligned with Paris Agreement goals. Here are a couple of nuggets:

– Proxy adviser Glass Lewis shared with Insightia Monthly in March that its fears about the campaign have been “fully realized”, with some “objectively bad climate plans winning upwards of 90%+ support.”

– ShareAction’s claims that climate transition plans from Barclays and Standard Chartered were insufficient, on the grounds that they featured loopholes to ensure continued fossil fuel financing, fell largely on deaf ears. Both U.K. banks’ climate plans won upwards of 80% support at their 2022 annual meetings.

For now, the investors that are actually casting the votes seem enamored with the ability to have a “say” – and some companies seem happy to provide it. But with say-on-climate resolutions calling for annual reporting, more transparency is on the way. That means it probably won’t take long for these plans – and anyone involved with establishing & executing them – to draw more scrutiny. Not to mention, companies that set goals may find themselves with greater disclosure obligations (and liability risks) under the SEC’s proposed climate disclosure rules.

Liz Dunshee