Professionals say changes in wording of proposals can influence voting
One of the trends to emerge from this year’s proxy season has been the growing success of climate change-based shareholder resolutions – and speakers on a KPMG webinar this week attributed that success in part to more effective phrasing.
Environmentally conscious shareholders are learning how to catch the attention of large institutional investors by adapting the words used in the resolutions they file for AGMs, according to professionals. Specifically, they say, requesting that public companies report on the risks and business impact of climate change is helping concerned shareholders gain traction.
‘The reason we’ve seen a massive jump in support [for these proposals] is that the shareholder community putting them forward has become much more intelligent and sophisticated about the wording it uses,’ says Brendan Sheehan, managing director of Rivel Research Group.
Sheehan cites New York State comptroller Thomas DiNapoli’s victory against ExxonMobil as an example. DiNapoli requested that Exxon report on how its business model would be affected by global efforts to limit the average rise in temperatures to below 2°C. Although the Exxon board advised its shareholders to vote against the proposal, it received 62.3 percent support.
Shareholders in Occidental Petroleum and PPL Corporation proposed similarly pragmatic resolutions aimed at climate change risk reporting, which were supported with 65.7 percent and 56.8 percent of the votes, respectively.
David Lynn, partner at Jenner & Block, says the repercussions of these shareholder votes are being felt beyond the industrial sector. ‘Everything used to be focused on companies with a big carbon footprint, but now many other companies are asking whether they need to change the way they do things,’ he says.
In addition to shareholders becoming savvier in drafting their proposals, several large institutional investors have said they will be more focused on environmental risk and reporting. BlackRock included climate risk disclosures in its five engagement priorities for 2017 to 2018, State Street encouraged board directors to focus on environmental and social sustainability earlier this year, and Vanguard has said it may support shareholder proposals on this issue in the future if it believes there is a ‘logically demonstrable linkage between the specific proposal and long-term shareholder value of the company.’
Reporting on environmental and sustainability issues is a complicated subject for public companies because there is no universal or standardized approach, Lynn says. The SEC has yet to adopt the Sustainability Accounting Standards Board’s framework, something it was considering last year.
‘One of the fundamental problems is that the way public issuers define CSR is very different from how the institutions define it,’ Sheehan says. ‘The corporate community needs to do much more work with investors to understand what they mean when they’re talking about CSR.’