‘Say on Climate’ campaign faces first big test at investor meetings

One month ago, Chris Hohn, the billionaire hedge fund investor, urged investors in Royal Dutch Shell to vote against the oil major’s climate strategy.

At first glance, the decision by Shell to give investors a regular say on climate plans at its annual meeting on Tuesday should have pleased Hohn.

As the founding figure of the “Say on Climate” campaign, Hohn’s TCI Fund Management has enlisted global investors to press dozens of companies to set out their plans for dealing with their greenhouse gas emissions and to allow investors to regularly review the strategy.

But speaking at an event last month, Hohn said it was “obvious” that shareholders should vote against Shell’s plans for falling short. “Targets and a plan to back them up are fundamental to the change we need,” he said.

Hohn’s blunt recommendation was the latest example of how the politics of climate change has engulfed corporate annual meetings globally this year.

The Say on Climate vote represents the biggest shake-up of the annual meeting season since the US and UK gave shareholders a vote on executive pay.

Unilever, Nestlé, Glencore and Moody’s are among the companies that have pledged to introduce the vote on climate plans this year, and more have promised to do so next year.

Separate to the Say on Climate, shareholders in ConocoPhillips last week voted 58 per cent in favour of a proposal calling for the US oil company to reduce all of its emissions, while a majority backed a similar resolution at Phillips66.

“The [Say on Climate] concept is gaining legitimacy with major companies adopting it,” says Hohn.

Shareholders, companies, environmental activists and proxy advisers have clashed inevitably over the climate transition plans, and the concept of Say on Climate votes.

At Charter Communications, the $150bn US cable, wireless and phone group, shareholder attempts to introduce a Say on Climate vote failed after management recommended investors vote against it.

Under the initial aims of the campaign, companies were asked to disclose emissions annually, set out a plan to manage and mitigate those emissions, and put their plan and performance to a regular, ideally annual, vote.

Advocates for giving shareholders a say believe it will help ensure companies develop robust plans and follow through on these. Critics, however, argue it is not shareholders’ job to micromanage businesses. There are also concerns that many investors will blindly sign off on the plans, even if companies are not living up to net zero emissions goals.

“We can see investors and companies are being tempted to use this for greenwashing,” says Lucie Pinson, executive director of Reclaim Finance, a non-profit environmental campaigning group.

Investor advisory groups have been among the detractors. Glass Lewis, the proxy adviser, says the vote could “remove some level of accountability from directors” who should be responsible for these transition plans.

Analysts at Morgan Stanley have also struck a cautious note. “While the campaign has gained prominent supporters, many investors think that directly voting against the board of climate risk laggards is a more effective and straightforward strategy,” they said in a recent report. 

Calpers, the largest public pension fund in the US, is one such investor. Anne Simpson, managing investment director of board governance and sustainability, says the fund is not backing Say on Climate measures because it believes they will fall victim to the same problems as the Say on Pay initiatives, which have largely failed to rein in executive pay in the US. 

“The [Say on Pay] record is underwhelming, at best. So what we’ve done is shift away from using that as the way to call for change, and we’re voting against [board] members,” Simpson said.

At ExxonMobil, for example, Calpers is backing a slate of new directors. It believes that the current board “lacks experience in the energy sector and the transition to low carbon”.

“They’re not in a position to really interrogate and understand and oversee what’s needed for management to generate new strategies . . . so where would a Say on Climate help with Exxon?” Simpson says, “It’s just not going to drive the change that’s needed any more than Say on Pay has helped us.”

Johan Florén, head of sustainability at Sweden’s AP7 pension fund, expressed similar concerns, although he said the fund had not taken an official stance on Say on Climate. “If we do things that give the appearance of doing some good, but sort of just go half way, we create a lot of work for ourselves,” he said. “In [the worst] cases, we might even push out real change.”

Hohn, however, argues that Say on Climate will help ensure that investors at least have the information they need to assess a company’s performance when it comes to tackling emissions. 

“Some people say Say on Climate will be like Say on Pay: emissions will keep growing like pay does. But that depends on how people vote. The concept could fail. But it doesn’t have to fail,” he says.

If shareholders vote against plans and, more importantly, against directors, he argues, companies will have to listen. 

Still, in response to the criticism, the campaign is being reformed. While globally it will advocate for shareholder votes on climate plans, in the US it has ditched the concept of a regular say for investors and instead will focus on asking companies to disclose emissions and set out a plan and targets to cut these.

Hohn has a reputation as a combative and outspoken investor, willing to publicly pick fights. But his crusade for Say on Climate votes has largely been friendly.

His first campaign success began at airport group Aena last year, where TCI is a shareholder. Since then, much of the focus has been on trying to get companies to commit to such climate votes without the need for a shareholder resolution.

Knowing that he can be a controversial figure, Hohn has taken a step back from the campaign, leaving his charity, The Children’s Investment Fund Foundation, and other non-governmental organisations to lead efforts. “I might have thrown the first few grenades, but now it is with CIFF,” he says.

Even as clashes have taken place, support for the shareholder resolutions on climate change generally has soared to an all-time high, with more than half of investors on average backing such proposals this year, compared to just a third in 2020, according to data provider ProxyInsight.

“[Say on Climate] is a positive development in the AGM season,” says Mirza Baig, head of environmental, social and governance research and stewardship at Aviva Investors.

As for Shell, the oil major aims to become a net zero emissions company by decarbonising existing fossil fuel businesses but continuing to invest in them — while “over time” ploughing more funds into gas, chemicals, cleaner technology and selling power. 

Hohn, however, says the company’s plans are not aligned with the Paris agreement to limit global warming to 1.5C by 2050.

“If investors rubber stamp any old plan, any old performance, [Say on Climate] won’t have an impact.”