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Keeping you in-the-know on environmental, social and governance developments

Here’s something that I blogged earlier this week on’s “Proxy Season” Blog:

“Say-on-climate” has been a weird issue this proxy season – taking off initially in Europe but sputtering out here in the US, due in big part to push-back from institutional investors. Now, the two biggest proxy advisors have clarified how they’ll evaluate these proposals, if they continue to appear on ballots. Basically, they’re both taking a “wait & see” approach.

The “Policies & Procedures FAQs” that ISS recently published say that they’ll be soliciting investor feedback as part of ongoing policy development. A detailed Glass Lewis blog from last week delves into different iterations of these proposals – as well as company responses. Here are a few excerpts:

Given the broad variety of proposals – both management and shareholder proposals – and the lack of standardization on how shareholders should evaluate each of the climate plans submitted to a vote, Glass Lewis will continue to maintain a case-by-case approach on this issue. We intend to codify our approach in advance of the 2022 proxy season, following investor, corporate, and stakeholder engagements.

Very few investors have concerns regarding the additional disclosure that Say on Climate might promote. Glass Lewis strongly supports such disclosure, particularly when it is aligned with TCFD recommendations. However, from our perspective, the potential unintended consequences from offering a shareholder vote on a climate plan or strategy are more concerning. We are concerned that it could lead to scenarios where some investors, who may not have the capacity or technical ability to analyze these plans, provide a rubber stamp for climate strategies that are out of alignment with broader climate goals. Further, in certain markets, there could also be potential legal concerns.

An additional notable concern relates to having shareholders vote on a company’s climate strategy, which for all intents and purposes is an element of a company’s overall business strategy. A potential unintended consequence may be that when shareholders are asked to approve a company’s overall business strategy in a single vote painted with broad brush strokes, they may unintentionally sign off on certain aspects of strategic plans without a full and reasoned analysis of the effects of those plans. Until there is greater standardization of Say on Climate votes, whether through regulation or codified best practice guidelines, we believe shareholders should approach these proposals with caution, recognizing that their votes may be interpreted as sign off on nuanced aspects of a company’s strategy.

Given these concerns, during the 2021 proxy season, we will generally recommend against management and shareholder proposals requesting that companies adopt a policy that provides shareholders with an annual Say on Climate vote on a plan or strategy.

When companies bypass that step, and place their climate plans up for an advisory vote, Glass Lewis will evaluate these climate plans on a case-by-case basis, as detailed below.

If you’ve received other climate-related shareholder proposals and if ISS has a heavy influence on your shareholder votes, you also should definitely check out their updated FAQs for color on how those proposals will be evaluated and what info ISS considers. They say that ISS prefers to see a committee with explicit oversight responsibility of environmental risks and values TCFD-based disclosure. ISS tends not to support “Paris Agreement” proposals that request a specific action such as selling assets, but they tend to support requests for analysis & disclosure on whether a company’s strategy is realistically aligned with Paris Agreement goals.

The ISS FAQs also explain how the proxy advisor evaluates “political contribution” and “lobbying” proposals. All of these policies are at play in a “climate lobbying” proposal that’s going to a vote a Norfolk Southern next week, for which both ISS & Glass Lewis have recommended support. This proposal is just the initial phase of this initiative, so it’s likely that even more companies will receive this proposal next year – and should be monitoring how this plays out.

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