23 Oct 2020

CIFF calls on investors, advisers and regulators to ensure every company puts a climate transition action plan to an annual shareholder vote

After the world’s largest airport group adopts the first ever annual investor vote on its climate policy, CIFF trustees Sir Chris Hohn and Dr Graeme Sweeney write to other major asset managers and investment advisors calling on them to make this the industry standard and for this to become a regulatory requirement for all companies.

CIFF has written to major asset managers, pension consultants and proxy voting advisers to highlight the need to ensure companies publish climate transition action plans and put these to an annual shareholder vote. As the world’s largest philanthropy that focuses specifically on improving children’s lives, addressing the climate emergency is key to a secure and sustainable future for children around the world.

Every company in every sector needs to reduce the full scope of its emissions to net zero. In their letters, Dr Graeme Sweeney and Sir Chris Hohn highlight that it is essential for companies to publish a credible action plan to show how they will survive and prosper during this transition. Moreover, to ensure accountability for implementing and improving such plans, the plans must be put to an annual shareholder vote. This should be the standard for every company, every year.

Currently, companies around the world are failing to produce credible climate transition action plans. Of the over 40,000 listed companies globally, only 2.5% have committed to set a Science-Based Target, and only 0.5% have set a validated target in line with the Paris Agreement goal of 1.5°C.

Investors – and the pension consultants and proxy voting advisers that guide them – are failing to hold companies to account on climate change. Large asset managers – including BlackRock, Vanguard and State Street – have appalling voting records on climate change resolutions, despite claiming to be responsible stewards of their clients’ capital.

Large asset managers have the votes to file resolutions at AGMs, and they should use this power to require companies to publish a climate transition action plan and put this to an annual shareholder vote where companies fail to do so voluntarily. This is a requirement that should be automatically embedded in the by-laws of every company.

“Climate change threatens the prosperity and security of all of us, and the finance industry has a key role to play in the transition to a net zero economy”. – Dr Graeme Sweeney, Chair of the Board, CIFF

Last week Aena, the world’s leading airports group, became the first major company to agree to adopt the practice of publishing an annual climate transition action plan and putting this to a shareholder vote. This follows engagement and resolutions proposed by TCI, CIFF’s long-term investment manager. This sets an important precedent for other companies and investors around the world.

The Spanish Government, as Aena’s majority shareholder, is to be congratulated for supporting this world first. There is now a historic opportunity for the Spanish Government to further strengthen its leadership on climate change, by formalising a requirement for all companies to adopt this practice in the proposed Climate Law.

Such votes should become a regulatory requirement in every country. The ‘Say on Pay’ rules in the UK and US provide a precedent for requiring an annual shareholder vote, and similar rules can be quickly adopted for climate transition action plans. We are calling on the UK and Italy, as Presidents of the 2021 G7 and G20 respectively, to make this a priority leading up to COP26. In the absence of mandatory regulation, shareholders must lead the way by tabling resolutions to force companies to publish a climate transition action plan and amend company by-laws to ensure this is put to an annual vote.

Asset managers with consistently weak track records in voting for critical climate resolutions continue to receive high ratings from leading pension consultants. We have also written to the major pension consultants Willis Towers Watson, Aon and Mercer to emphasise their responsibility to ensure that no asset managers with weak records on shareholder engagement should be able to receive fund ratings which put them in a position to win or retain business from their clients.

The proxy voting advice firms Institutional Shareholder Services and Glass-Lewis recommended clients to vote for the resolutions proposed at Aena. We have also written to call on them to support similar resolutions at all companies as standard.

As part of CIFF’s climate finance strategy, we aim to encourage shareholders to take an active approach to reducing the emissions of the companies they own in line with the Paris Agreement, and have previously written to a number of governments, central banks and regulators urging such action (find out more here and here). To discover more information about CIFF’s Climate Finance strategy, view our 2019 Annual Report here.