- Management-sponsored say-on-climate votes emerged as a new avenue for investor engagement on climate change in 2021. The practice’s adoption may increase as more companies try to sell investors on their climate strategies.
- Most say-on-climate votes in 2021 (58%) were one-time events, with only 24% of votes set to have annual follow-ups. This may fuel concerns that say on climate could be a distraction or facilitate greenwashing.
- Say-on-climate votes in 2021 were mostly at companies with emission trajectories aligned with the Paris Agreement, but companies with less-aligned paths have set votes in 2022. Shareholders may use those to sound the alarm.
Investor engagement on climate change increased markedly in 2021.1 One key development was the emergence of say-on-climate votes: management-backed resolutions that ask shareholders to approve a company’s climate plan or climate-action report proactively, either on a one-time or recurring basis.
In most cases, say-on-climate votes are nonbinding and advisory; even if a vote fails, the company isn’t required to change its plan. Shareholders, however, may expect directors to carefully consider the result in developing their approach to climate change — particularly when the proposal receives strong shareholder opposition. Say-on-climate votes are often the result of shareholder pressure and may be preceded by a separate, shareholder-backed proposal calling on a company to adopt a climate strategy and submit it to a vote.2
Say on climate is divisive. The Children’s Investment Fund, a U.K. hedge fund and activist investor, first championed the cause in advance of the 2021 proxy season,3 and the campaign received support from other investors and the French Sustainable Investment Forum.4 Since then, however, other prominent investor alliances have expressed skepticism about the practice, including the Principles for Responsible Investment (PRI), which argued that the benefits of say on climate “seem to be outweighed by the risks and potential unintended consequences.”5 Only 33 companies in MSCI ESG Ratings coverage had held or scheduled say-on-climate votes, as of Feb. 1, 2022, but say on climate may remain on the agenda as investors increase their scrutiny of companies’ climate practices and as companies work to build reputations as climate leaders.
Divided opinion
Proponents argue that say-on-climate votes will drive better carbon disclosures, encourage more credible climate strategies and enhance shareholder engagement. Detractors argue that arming shareholders with another advisory vote will be, at best, a misallocation of resources.7
One concern is that say-on-climate votes could facilitate greenwashing. For example, investors who lack the expertise and resources necessary to effectively scrutinize climate plans could inadvertently “rubber stamp” plans with inadequate emission targets. Companies might then try to justify those plans in future years by pointing to the fact that they received shareholder approval.
Regularly holding follow-up say-on-climate votes in future years could address this concern, at least in part, as this approach could help investors assess a company’s decarbonization efforts over time. To date, however, most say-on-climate votes have been one-offs or have been held without any public commitment to hold follow-up votes. This lack of ongoing focus on say on climate may fuel concerns that the votes could be a distraction.
Say-on-climate vote frequency, 2021-2022
Includes 33 companies in MSCI ESG Ratings coverage that have held or scheduled say-on-climate votes. “Multiple irregular” comprises companies that have committed to hold more than one say-on-climate vote but that have not disclosed a regular schedule of votes. Companies that did not disclose a voting schedule beyond their first say-on-climate vote have been classified as one-time. Data as of Feb. 1, 2022. Source: MSCI ESG Research LLC
Another criticism is that shareholders already have a better way to hold boards accountable for climate inaction: voting against individual directors.8 These critics stress that mitigating climate risk falls squarely within the board’s jurisdiction, and that shareholders who are dissatisfied with a company’s climate strategy should oppose the re-election of the directors responsible for that strategy — or support a dissident slate of nominees who are prepared to develop a credible plan. Under this view, say-on-climate votes could distract shareholders from the crucial questions of board accountability and director skills.
But advisory say-on-climate votes allow shareholders to express dissatisfaction without risking the disruption caused by a failed director election. Moreover, they also allow for escalation, as directors who ignore a low say-on-climate result one year could be targeted the next.
Planning to engage
To help both investors and companies evaluate these questions, we created an interactive overview of all past and upcoming say-on-climate votes within our ESG Ratings coverage. In the upper section, the x-axis positions companies by their market capitalization (in USD), and the y-axis positions companies by their implied temperature rise. The lower section shows how much support each company’s most recent say-on-climate vote received. Click on a dot/square to highlight a single company, and use the drop-down menu to filter companies.
Past and upcoming say-on-climate votes, 2021-2022
Universe comprises companies in MSCI ESG Ratings coverage that have held or scheduled say-on-climate votes. Implied temperature rise is designed to show the temperature alignment of companies, portfolios and funds with global climate targets. It compares a company’s current and projected greenhouse-gas emissions across all emission scopes with its share of the remaining global carbon budget for keeping global warming well below 2 degrees Celsius (°C). It converts a company’s “undershoot” or “overshoot” of its carbon budget to an implied rise in average global temperatures this century, expressed in °C. Data as of Feb. 1, 2022. Source: MSCI ESG Research LLC
Last year, say-on-climate votes were held mostly by companies with emission trajectories that were aligned with the Paris Agreement goal of limiting global warming to well below 2°C relative to preindustrial levels. However, many companies with less-aligned emission trajectories have said they will put their climate plans to the test in the 2022 proxy season, including several in the materials and energy sectors. If these companies are unable to convince investors that their climate plans are credible, shareholders may use the vote to express concern over climate strategy — just as they use say-on-pay votes to express concern over executive pay practices. In 2021, for example, shareholders defeated 17 say-on-pay votes held by constituents of the MSCI USA Index and 70 constituents saw support dip below 80%.
Most of the companies that have held say-on-climate votes so far were based in Western Europe and Australia, with relatively few in North America. However, shareholder proposals calling on companies to develop climate strategies and hold say-on-climate votes could spur more adoption at U.S. companies. In 2021, four such proposals at U.S. companies received an average of 27% support. Outside the U.S., four of the new say-on-climate votes scheduled for 2022 were preceded by climate-related shareholder proposals.
Bridging the gap
Whether they become an annual meeting mainstay or fade into obscurity, say-on-climate votes demonstrate investors’ willingness to experiment with innovative engagement tools to pressure companies into adopting credible net-zero strategies. Where investors feel that a company has not sufficiently engaged on climate change, pushing for a say-on-climate vote or voting against a climate-related management resolution may be one way to effect change.
1 “As climate risks skyrocket, largest asset managers vote for more climate-related shareholder proposals, tipping support to record levels in 2021.” Ceres, Dec. 6, 2021.
Mtshali, Zanele et al. "Breaching the Barricades: Investors and Voting during the 2021 Proxy Season.” MSCI ESG Research LLC, Dec. 14, 2021.
2 “These shareholder proposals are outside the scope of our analysis.
3 “Say on Climate.” Children’s Investment Fund Foundation. Accessed Feb. 11, 2022.
4 “Le FIR interpelle les 120 premières capitalisations françaises (SBF 120) pour la généralisation d’un Say on climate exigeant.” Forum pour L’Investissment Responsable, Sept. 8, 2021.
5 “Climate transition plan votes: investor briefing.” Principles for Responsible Investment, Feb. 10, 2022.
6 For instance: “Say on Climate.” Children’s Investment Fund Foundation. Accessed Feb. 11, 2022.
7 For instance: Eccles, Robert G. “Here Is My ‘Say On Climate.’” Forbes, Jan. 5, 2021.
8Verney, Paul. “Say on Climate: It’s won over investors, NGOs and even corporates. But will it work?” Responsible Investor, March 31, 2021.
Further Reading
Constructing Net-Zero Portfolios: Three Approaches