At the time of writing, we had raised our concerns via 61 management proposals across 58 company meetings. On these, we either voted against management resolutions, abstained, or supported but with communication on the specific conditions for supporting next year’s vote. This dynamic treatment reflected the fact that companies were falling short of our expectations to varying degrees.
It is, perhaps, not surprising to see that the affected votes were concentrated in the Financial, Oil & Gas, Utilities and Mining sectors. All are systemically important to economic growth but face significant challenges in defining and reducing their value chain emissions. We targeted those companies that demonstrated a lack of urgency on climate change.
Most companies were from the two largest economies – China and the United States. We expect that, with China’s latest pledge to reach net zero emissions by 2060 and the US election result which provides a much clearer policy direction, more companies will start managing their climate impact soon. This also means that the financial risks for laggard companies will be more significant, as policy makers are likely to implement new regulations to promote decarbonisation in both countries.
Given that ultimate accountability for climate action resides with the Board, in 2020 we voted against:
• Individual directors
• Financial and statutory reports
• Other management resolutions
We also voted against executive pay arrangements at certain companies that did not incorporate targets to support improvements in their climate ambition.
Apart from management proposals, we also consider those raised by shareholders to be effective in encouraging improvement and will typically support requests to set long term reduction targets in line with the 1.5°C or 2°C scenarios, to align lobbying activities to the ambitions of the Paris Agreement, and to improve climate change disclosure and risk analysis.
In 2020, we supported around 65% of the shareholder resolutions directly related to climate change. Each resolution was assessed in terms of its relevance and practicability. Our engagement also informed our voting decisions, particularly where this demonstrated that companies were actively working on improving their climate strategy. In some cases, although we agreed with the spirit of those requests, we had to abstain or vote against the proposals as the specific requests of the resolution were too prescriptive, and we took a view that management needed more discretion to identify the most suitable decarbonisation approach.
We are engaging with the companies impacted by our climate change voting approach to help them further understand our rationale and expectations. As investors, we expect to see adequate knowledge and responsibilities defined at the top level of the business. This enables companies to properly manage their decarbonisation journeys, and to provide high-quality disclosure of climate-related risks in the annual outputs.