Overview
Two separate reports assessing different aspects of the effectiveness of the Climate Action 100+ (CA 100+) initiative have concluded that there is significant scope for improvement.
Majority Action's report focuses on the voting behaviour of a sample of the largest CA 100+ investor signatories. Specifically, the report looks at the voting decisions made by these investors on shareholder proposals and director elections at the 45 US based Climate100+ focus companies in 2021.
The headline conclusion is that the efforts of the CA100+ coalition to accelerate climate action at high emitting companies is being 'systemically undermined by the proxy voting behaviour of many of its largest investor signatories' and that the 'promise' of the initiative will remain unfulfilled if this is not addressed.
Separately, ShareAction's report focuses on the climate engagement reporting of 60 of the largest CA100+ signatories including disclosure around their engagement strategies and participation in the CA100+ initiative. The report identifies significant scope for improvement in terms of the effectiveness of engagement.
A key conclusion is that:
'As CA100+ nears the end of its initial five-year phase, it has an opportunity to raise the ambition of engagement with focus companies ahead of its second phase, from 2023 onwards'.
Our key takeaways from both reports, together with the recommended improvements put forward in each targeted at both investor signatories and at the initiative itself are below.
CA100+ investors' voting record: Two key takeaway's from Majority Action's report
Most large investors are not holding individual directors to account on climate action
According to Majority Action's report, ahead of the 2021 proxy season, 23 of the 45 US-based focus companies identified by CA100+ had not achieved full compliance with any of the initiative's nine Net-Zero Company Benchmark indicators. Despite this, the report found that a majority of large investor signatories continued to support the election of directors at these companies. For example, the report found that:
- Over 50% of investors voted for over 90% of the directors at the 23 companies that had not achieved full compliance, with two investor signatories voting for every director at every company.
- Looking at director votes at seven companies that had no 'net zero ambition' ambition and had not provided TCFD aligned emissions disclosures, 20 investor-signatories voted in support of 100% of directors more than 50% of the time.
- The report found that only a small minority of investors (four investor signatories) supported fewer than 60% of the directors at the same seven companies. The report comments that:
'While the rationales of these investors are unknown, these investors could be said to be showing a high propensity for opposing directors at companies failing to make progress towards achieving the Net-Zero Company Benchmark indicators'.
Most large investors are failing to support 'climate critical' resolutions
Majority Action's report identified 19 'climate critical' resolutions that went to a vote at the 45 US based Climate Action 100+ focus companies in 2021. 13 of these shareholder resolutions were 'flagged' by Climate Action 100+ and a further six were not 'flagged' by the initiative but nevertheless included climate-related demands eg the three resolutions that received majority support at Chevron, ConocoPhillips and Phillips 66 calling on the companies to set greenhouse gas emissions reduction targets.
[Note on 'flagging': For clarity, investor signatories to Climate Action 100+ are not bound to/required to vote against 'flagged' resolutions – they vote on shareholder proposals in their individual capacity and not on behalf of the Climate Action 100+ initiative. Nor does Climate Action 100+ 'take a formal position on shareholder voting'. Rather, 'flagging' a resolution considered to be aligned with the goals of the initiative is intended to highlight/draw attention to the resolution and help ensure it receives due consideration from investor signatories to the initiative.]
The report found that:
- only 15 of the 47 largest Climate Action 100+ investors voted for all 19 of these 'climate critical' resolutions.
- only 25 of the 47 largest Climate Action 100+ investors voted for all (100%) of the flagged resolutions
- seven investors failed to support 70% of flagged resolutions
- four Climate Action 100+ flagged shareholder resolutions (resolutions at Chevron, Dominion, Duke Energy and Caterpillar) would have received majority support had Climate Action 100+ investors lent their support.
CA100+ investors approach to engagement: Four key takeaways from ShareAction's report
ShareAction's analysis of the climate engagement reporting of 60 CA100+ investor signatories makes the following four findings.
- 'Climate engagement strategies are inadequately articulated'. For example, the report found that:
- 37% of disclosures failed to clearly specify climate change as a 'thematic engagement priority', which the report suggests raises questions about whether they are allocating resources to effective engagement on climate issues
- 82% of CA100+ investors did not specify any objectives for climate change engagement
- 82% failed to specify escalation steps for unsuccessful engagement. Of the 11 investors who did do so, the report found that 'many were vague and noncommittal' about when the steps would be taken.
- 'Aggregate engagement reporting by investors is inconsistent and vague': For example, the report found that:
- 62% did not provide aggregate statistics on their climate change engagements (ie the relative numbers of engagements on different ESG topics)
- Less than half of investors (48%) said they monitor the progress of their engagements. Of this group, only 10 reported on the progress of engagements.
- 'Climate engagement case studies are of low quality
- Though 'CA100+ signatory status is frequently highlighted' the 'detail of activities and outcomes' is lacking: For example, the report found that though 77% of investors in the sample included a reference to being a signatory of CA100+ in their engagement reporting, only 5% named all the companies for which they are the lead investor
ShareAction concludes from this that:
'Whilst there are examples of effective engagement and impact within CA100+, ShareAction found that these are the exception…in general, engagement as practiced by CA100+ signatories lacks the ambition, transparency and accountability needed to drive the net zero transition at the pace required'.
A suggested way forward?
Majority Action's recommendations
Majority Action's report argues that in order to be effective in achieving its aims, the CA100+ initiative needs to set stronger expectations for investor signatories. The report comments:
'…our analysis demonstrates that its [ie Climate Action 100+] promise will remain unfulfilled if laggard investor members continue to support entire boards and key directors at companies failing to take necessary climate action, and fail to vote for climate-critical shareholder resolutions.
While leading investor-signatories are escalating toward boardroom accountability, ultimately these efforts will be slowed by laggard investors unless the floor of expectations for investor signatories is raised'.
To this end the report recommends that the CA100+ initiative implement the following three recommendations:
- 'Flag key votes on directors at companies that demonstrably fail to achieve the Climate Action 100+ Net-Zero Company Benchmark, and ensure that all key climate resolutions at Climate Action 100+ companies are flagged for Climate Action 100+ members'
- 'Establish proxy voting performance expectations for investor members, and uplift best standards for proxy voting policies and practices'
- 'Require prompt and comprehensive public disclosure of proxy voting from all Climate Action 100+ signatories'.
Similarly, ShareAction recommends that the initiative step up its expectations of investor signatories. ShareAction recommends that the CA100+ initiative:
- Set minimum transparency requirements on climate change policies and require Investor Participants to commit to them'.
- 'Set minimum escalation expectations for engagements undertaken via CA100+ and require Investor Participants to commit to them'.
- 'Publish and maintain a list of Lead and Collaborating Investors for each focus company'.
- 'Publish and maintain a list of engagement objectives and milestones for each focus company'.
- 'Publish aggregated statistics on engagement activities and outcomes against the CA100+ Net Zero Company Benchmark accompanied by detailed case studies on engagement with each focus company in annual progress reporting'.
Recommendations directed to CA100+ investor signatories
Engagement: ShareAction's report recommends that CA100+ investor signatories:
- 'Develop a strategy for climate change as a thematic engagement priority that includes science-based SMART objectives and is backed up by clear escalation steps'
- 'Report on engagement statistics at an aggregate level, clearly articulating the definition of engagements that are captured and reporting engagement on ESG sub-topics as well as milestones reached'
- 'Provide detailed case studies on a representative sample of climate change engagements, including: a) details of the company engaged; b) engagement status; c) engagement objectives; d) actions taken towards engagement objectives; e) outcomes of engagement; and f) next steps for engagement'
- 'Report on participation with CA100+, including numbers and names of companies where the firm is a Lead or Collaborating Investor as well as case studies (as above) for each'
Voting: Majority Action's report recommends that CA100+ investor signatories:
- 'Adopt and implement proxy voting policies that enable voting against directors at companies that fail to align their targets, capital expenditures, and policy influence to 1.5ºC pathways'
- 'Leverage resources like the vote flagging process and the Climate Action 100+ Net-Zero Company Benchmark to drive proxy voting to hold directors accountable'
- 'Announce their intention to vote in advance of annual meetings, and disclose all votes at Climate Action 100+ companies within six months of the AGM date'
- 'Ensure that any asset managers or service providers for which an investor-signatory is a client are also voting for climate critical shareholder proposals and against directors at misaligned companies. Include a review of managers’ proxy voting track record on climate change in the due diligence process for all asset manager mandate renewals and RFPs'.
[Sources: Majority Action media release; Majority Action report: Fulfilling the Promise: How Climate Action 100+ Investor-Signatories Can Mitigate Systemic Climate Risk; ShareAction media release 19/05/2022; ShareAction report: Power in Numbers? An assessment of CA100+ engagement on climate change]
