Is Say-on-Climate Here to Stay? It’s up to Investors

November 11th, 2021 | Jamie Bonham, Hasina Razafimahefa

The pressure is on companies, and boards specifically, to enhance transparency on their strategies to mitigate climate risks and sustain their businesses in a net zero future. 2021 will be seen as a turning point where climate resolutions began receiving record support from investors. With 26 climate-related resolutions on the ballots this year, an astounding 14 earned majority support.

And investors can go beyond climate-targeted shareholder resolutions to raise climate concerns with the board. NEI Investments, for example, has a policy of voting against the chair if we feel the company is not adequately managing its climate-related risks. We follow up with the company after the AGM to explain our rationale and ensure our vote doesn’t get lost in the mix. But that is the challenge with voting against directors due to climate-related concerns; while voting to remove a sitting director is arguably one of the strongest actions you can take, the clarity of the message can get lost among the myriad reasons we vote against directors.

That is where the Say-on-Climate campaign comes in.

What is a Say-on-Climate?

The Say-on-Climate campaign was spearheaded by the Children’s Investment Fund (TCI) with As You Sow and the Australasian Centre for Corporate Responsibility (ACCR). Companies targeted by a “Say-on-Climate” proposal are asked to offer an annual advisory vote on their transition plan to a net zero economy. Investors are then tasked with assessing the strength of the company’s strategy to reduce emissions and align with the goals of the Paris Agreement – and to vote for or against the plan.

Several leading companies agreed to go straight to putting their climate action plans to a vote in 2021. Unilever, Moody’s, and Shell chose this route. These management-sponsored proposals received overwhelming support, nearing 90% and upwards.* On the other hand, shareholder proposals targeting other, less proactive companies to adopt a Say-on-Climate received an average support of just 25%. Investors seem wary about requiring companies to adopt this new practice, whereas they emphatically support companies that are proactively taking steps on this front. While these results don’t necessarily reflect future trends, they raise questions about what the future holds given the likelihood more companies will be targeted by the Say-on-Climate campaign.

The intended benefits – and cautions – of Say-on-Climate

Mitigating the risks of climate change requires urgent action. We commend those companies that did not shy away from putting forward their climate transition plan on their ballots, especially in this early stage where only a few companies have started to adopt this practice. Transparency is key. A growing Say-on-Climate practice should promote transparency and could pressure companies that have been slow to detail their strategies.

However, we are wrestling with potential unintended consequences related to this emerging practice. Voting for transparency is not the same as voting on the quality of a company’s climate plan. Are investors equipped to vote effectively on each and every climate action plan? And will this discourage investors from holding the board directly responsible for its oversight role on climate? Is it not the role of the board to set the strategy, and the role of investors to toss the board, if they don’t like the job they are doing – not ask them to pass their oversight responsibilities to investors? And most vexing of all, will it follow the path of say-on-pay votes and result in only the most egregious cases getting voted down? The binary nature of the vote means there is little room for nuance in assessing plans.

It is up to investors to decide whether Say-on-Climate is here to stay

What can we as investors do to make Say-on-Climate an effective tool to address climate concerns? Below are some key areas we believe we should consider and discuss.

  • Frequency: Is an annual advisory vote optimal when real transition plans will play out over years, not months? A longer voting cycle might give investors enough time and space to effectively assess progress and engage companies on areas of concern, while also giving companies enough space to make meaningful changes that are long-term in nature.
  • Balancing transparency against content: While companies choosing to be transparent should be commended, simple transparency is not the goal – a robust climate strategy is. Investors will need to balance those two elements and reflect that in their voting.
  • Accountability: Should the board or specific committee members be automatically voted down if a climate plan is poor? Or should there be an escalation process for particularly egregious plans? The benefit of the advisory vote might be to provide investors a way to distinguish between an unsatisfactory plan and a governance failure, where the latter requires votes against directors.
  • Engaging the proxy advisors: Proxy advisors will inevitably play a key role in influencing vote results if Say-on-Climate becomes common practice. Many investors will not have the resources to assess a large number of complex action plans. They will need to rely on proxy advisor research. As such, investors need to ensure that proxy advisors use a robust and transparent framework for their assessment.
  • Explain your vote: A vote number without context can send the wrong signal to a company. Investors need to follow up with companies to explain their rationale, especially in cases where a vote in favour of a climate plan represents only directional approval and does not necessarily indicate all aspects of the plan are fine.

As with just about everything ESG-related, the devil is in the details. Say-on-Climate is not a panacea and should be rolled out with care; but as long as investors stay focused on keeping the board accountable for a robust climate strategy, it could be a very useful tool for ensuring companies meaningfully address their future climate risks.

*Based on NEI review of the voting results of 14 companies
RIA Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.


author's photo

Jamie Bonham

Director Corporate Engagement
NEI Investments

Jamie Bonham, B.Sc. is Director, Corporate Engagement at NEI Investments. Jamie has over fifteen years of experience in researching and engaging with companies on environmental, social and governance (ESG) issues. At NEI he oversees the implementation of the ESG program across the NEI portfolio to support NEI’s thesis that companies can mitigate risk and take advantage of emerging business opportunities by integrating best ESG practices into their strategies and operations. This includes a focus on conducting direct, collaborative dialogues with companies and policy makers on key ESG issues.

author's photo

Hasina Razafimahefa

Manager of ESG Evaluations and Proxy Voting
NEI Investments

Hasina Razafimahefa is Manager of ESG Evaluations and Proxy Voting at NEI Investments. With NEI since 2016, she has a research background in a diversity of sustainability issues, including financial institutions and the low-carbon economy. Hasina has an Undergraduate degree in Accounting from INSCAE Madagascar, a Post‐Graduate Diploma in Finance from UQTR, and a Masters in Sustainability Science from the University of Tokyo.