Spanish airport operator Aena has adopted what is thought to be the world’s first annual advisory vote on a company’s climate action plan.
The move follows intense pressure from The Children’s Investment Fund (TCI), which manages around $30 bn, for Aena to take a leadership role in the fight against global warming.
Under the proposals, passed at last week’s annual meeting, Aena will present its climate action plan for approval at the AGM in 2021 and then progress reports at each subsequent meeting. The votes will be advisory in nature.
The company has also updated its articles of association to make its climate strategy a permanent addition to the AGM agenda.
‘I would say we are… one of the first, if not the first, major listed companies in the world to decide to adopt these commitments,’ said Maurici Lucena, CEO and chairman of Aena, in his AGM address.
TCI, managed by Sir Christopher Hohn, owns around 4 percent of Aena, making it the company’s largest shareholder after the Spanish government. Hohn has also sat on the board since Aena’s IPO in 2015.
The activist fund has been pushing the company, which operates 46 airports in Spain, to take a bolder approach to climate change for around a year.
Last November it sent a letter to Aena’s board asking it to make changes to its climate plan and advocate for lower emissions with suppliers, regulators and clients. It originally planned to challenge the company at its AGM in March, but the event was postponed until October due to the spread of Covid-19.
Earlier this year, TCI also took the step of voicing concerns about Aena to the Spanish government. In a July letter addressed to Teresa Ribera, the minister for ecological transition, Hohn asked for support in reshaping the group's climate strategy.
At last week’s AGM, Aena smoothed over previous disagreements with TCI. Lucena said he thanked Hohn for the ‘encouragement he has given us these months to be even more ambitious than we were initially thinking’.
Along with agreeing to annual votes, Aena has changed its climate plan to include more aggressive targets. For example, it has raised from 70 percent to 100 percent its target for self-generated renewable energy use by 2026, and brought forward plans to achieve net-zero emissions at its airports by 2040 instead of 2050.
Jonathan Amouyal, partner at TCI, tells IR Magazine all companies should have annual votes on their climate plans. ‘It’s clear... shareholders should have a vote,’ he says. ‘[It’s the] same concept as having a say on senior executives’ compensation. Shareholders are relevant stakeholders. They need to be consulted.’
He adds: ‘All companies have a role to play if we want to meet the targets set by the Paris Agreement.’
In recent years, companies have come under increasing pressure from investors to align their business strategy with the Paris Agreement climate goals, which aim to keep global warming this century well below 2 degrees.
The advisory vote on the climate plan was supported by BlackRock, which said in a voting bulletin it would be ‘beneficial at Aena given the material risk to its business model and its need to accelerate its efforts’.
BlackRock noted, however, that it is ‘mindful of a concern that this kind of ‘say on climate’ could shift accountability from boards to investors’. The institutional investor said such a vote used in isolation ‘has the potential to weaken board accountability’ and it would continue to vote against directors when companies fall short of expectations.
Chris Plath, senior ESG consultant at Leaders Arena, an advisory firm, says he wouldn’t be surprised to see more annual climate plan votes in the future. ‘The votes are similar to annual say-on-pay votes that are now prevalent in several countries, so the basic concept is well understood by shareholders,’ he says.
Plath says, however, that he doesn’t expect such votes to become widespread, at least in the foreseeable future. ‘Challenges include convincing management to include these resolutions on its ballot and determining the scope of the resolutions – for example, defining what ‘climate plan’ means and whether disclosures, including any related targets and metrics, are included,’ he says.
TCI is one of a handful of activist hedge funds that have turned their attention to ESG issues in recent years. Other examples include Trian Partners, Jana Partners and ValueAct. Earlier this year, ValueAct’s founder Jeff Ubben said he was leaving the firm to start a new fund focused on ESG criteria.
In the case of TCI, the firm has targeted not just corporate boards but also the wider investment industry as it seeks to draw attention to climate issues. Last month Hohn sent a letter to seven major asset managers calling for stronger action against companies over global warming.
There are obstacles to taking a traditional activist approach over ESG issues, notes Plath. ‘[T]he nebulous nature of ESG doesn’t lend itself in most cases to identifying clear deficiencies that, if corrected, could lead to a material increase in the target company’s financial performance,’ he says.