A replay of the webinar is available here.
CCGG’s Say on Climate webinar brought together representatives of both issuers and institutional investors to consider the merits and disadvantages of a shareholder advisory vote on company transition plans for arriving at net zero, one of the most pressing issues of this year’s, and last year’s, proxy season. Throughout the engaging and thoughtful discussion, there was a surprising amount of agreement on many aspects of Say on Climate and an insightful analysis of its implications, both from a governance perspective and in practical terms.
Say on Climate is a response to investor frustration with the slow pace of change regarding climate change and seeks to provide a solution to the problem of inadequate action on the part of issuers to address climate change. It is intended to encourage companies to mobilize their resource to develop transition plans to decarbonize their businesses. Say on Climate has clearly been a catalyst for discussions between investors and issues on boards’ responsibilities for driving strategy on climate change.
However, say on climate presents corporate governance challenges. It has implications for the traditional corporate governance triad that respects the discreet roles and responsibilities of shareholders, directors and management. Say on climate is essentially a say on strategy. It is the board’s responsibility to oversee strategy and for shareholders to opine on strategy undermines foundational governance principles.
It was argued that it is better for shareholders to use the rights they currently have, namely, to elect directors, to signal support or lack of support for how the directors are meeting shareholders expectations regarding oversight of climate risks and opportunities. Voting against directors signals investors are dissatisfied without usurping directors’ responsibilities.
Shareholders are also not in a position to vote on transition plans given the information asymmetry between boards and investors. Investors do not, and can not, have sufficient information to assess the merits of transition plans overseen by directors.
Panelists also noted practical considerations for widespread adoption of say on climate: voting on potentially thousands of proposals in a proxy season would pose an unrealistic burden on the resources of institutional shareholders. This raises a concern that decisions on say on climate would be outsourced to proxy advisors. It was argued that it is inappropriate for shareholders to ask for the right to oversee climate strategy and then delegate that right to third parties.
The adoption of Say on Climate votes may encourage companies to provide more comprehensive, consistent and comparable disclosure on their oversight of climate change. While there are corporate leaders that are providing this information now, there are still many laggards. Facing a Say on Climate vote may encourage enhanced disclosure on the part of those not currently providing this information. The concern was expressed, however, that Say on Climate’s binary nature of a yes or not vote makes it an inadequate communication tool because it provides no meaningful information regarding where a transition plan falls short, or why investors are dissatisfied with a plan, giving the Board no information to act on.
Say on Climate may also have the virtue of increasing engagement between issuers and investors. It can be a mechanism that drives greater engagement between issuers and investors. All panelists were in agreement that strong engagement is the key to investors and issuers working to enhance oversight of the risks and opportunities of climate change. Engagement and communication between issuers and investors are the key to progressing towards a net zero future. An annual “talk on climate” between issuers and investors was suggested and received consensus support from panelists.
Our panelists included the following leaders from the issuer and investor communities:
• Brian Levitt, Chair of the Board, TD Bank Group
• Lorraine Mitchelmore, Corporate Director and former President and Country Chair, Shell Canada
• Bob Rooney, EVP and Chief Legal Officer, Enbridge Inc.
• Richard Manley, Managing Director, Head of Sustainable Investing, CPP Investments
• Maia Becker, Senior Director, Corporate Governance and Responsible Investment, RBC Global Asset Management
• Jamie Bonham, Director, Corporate Engagement, NEI Investments