Fifty-eight percent of say-on-climate votes were a one-time affair, according to a new report from index provider MSCI, which warns that the lack of follow-up could drive concerns around greenwashing – or at least that such votes are a distraction.
Around a quarter (24 percent) of companies giving shareholders a say on their climate action have scheduled annual follow-ups. Twelve percent plan to hold a vote every three years, while 6 percent percent say they plan to hold a follow-up vote but have made no public commitment as to when that might happen.
MSCI notes that most say-on-climate votes held in 2021 were at companies with emission trajectories already aligned with the Paris Agreement. In 2022, however, companies with ‘less-aligned paths’ have votes planned and the firm says ‘shareholders may use those votes to sound the alarm’.
Just 33 companies in MSCI ESG Ratings coverage had held or scheduled say-on-climate votes as of February 1, 2022.
‘Many companies with less-aligned emission trajectories have said they will put their climate plans to the test in the 2022 proxy season, including several in the materials and energy sectors. If these companies are unable to convince investors that their climate plans are credible, shareholders may use the vote to express concern over climate strategy – just as they use say-on-pay votes to express concern over executive pay practices,’ says MSCI in Say-on-climate: Investor distraction or climate action?
It adds that in 2021, for example, shareholders defeated 17 say-on-pay votes held by constituents of the MSCI USA Index and 70 constituents saw support dip below 80 percent.
MSCI points out that there is something of a geographical divide between those who support the idea of a say-on-climate vote – largely in Europe where the idea emerged – and those who believe investors already have adequate means of making their views known through director elections. The firm notes that putting the climate action plan up for a vote, which is almost always an advisory vote, allows shareholders to express dissatisfaction ‘without risking the disruption caused by a failed director election’. This also allows for escalation, with directors who ignore a low say-on-climate result one year aware they may be targeted the following year.
The geographical difference in views has resulted in relatively few votes in North America – but MSCI says that could change soon: ‘In 2021, four such proposals at US companies received an average of 27 percent support.’