Enhancing Investor Engagement in France: The Role of Climate Action Plans

The landscape for investor engagement on climate transition plans in France is evolving, influenced by shifting regulations and growing investor activism. A new report, published by the 2° Investing Initiative (2DII), explores the dynamics of investor engagement, focusing on the role of shareholder resolutions in promoting climate action plans that align with the Paris Agreement. 

2DII’s analysis provides a comprehensive overview of the challenges and opportunities for effective climate stewardship by investors in France. You can read the report in full here. Below, we outline some of the key considerations and findings of the report. 

The Growing Importance of Climate Action Plans

Investors worldwide are increasingly committed to supporting the goal of net-zero greenhouse gas emissions by 2050, consistent with the Paris Agreement’s objective to limit global temperature rise to 1.5°C. Investor engagement typically involves exercising shareholder rights to influence corporate governance decisions through voting on resolutions. Shareholder resolutions, particularly those related to climate issues, have become critical tools for investors when other forms of engagement fall short.

In France, the legal framework governing shareholder resolutions presents unique challenges. French corporate law mandates a division of powers between the board and shareholders, necessitating that shareholder resolutions be non-binding, thereby limiting their effectiveness. The 2DII report examines these legal intricacies and their impact on the utility of climate-related shareholder resolutions in France.

Shareholder Voting and Corporate Governance

Shareholder voting is central to corporate governance. Shareholders typically vote on key issues at AGMs with resolutions proposed by either the board of directors or shareholders themselves. In France, shareholders can file resolutions if they represent at least 5% of the share capital, though this threshold decreases with increasing share capital.

The legal status of shareholder resolutions in France, once approved, remains non-binding due to the mandatory division of powers. This restricts shareholders’ ability to compel boards to act on environmental issues, thus reducing the impact of such resolutions compared to other jurisdictions where binding resolutions are possible.

Increasing Climate Focus for Company Resolutions

Climate-related shareholder resolutions have gained prominence as investors demand greater corporate accountability on climate issues. These resolutions have evolved from requiring transparency on greenhouse gas emissions to demanding comprehensive climate action plans. 

A climate action plan outlines a company’s strategy to reduce emissions and transition to a sustainable business model. Effective plans include short-term, science-based targets, phase-out of fossil fuels, alignment of executive compensation with climate goals, and commitments to transparency and annual performance reporting. 

You can read more about what makes a credible plan here on the Say on Climate website.

Reframing Climate Resolutions as Risk Mitigation

The 2DII report also highlights how shareholder approval of climate action plans can serve as a risk mitigation measure for boards. By obtaining shareholder endorsement, companies can reduce reputational, litigation, and financial risks associated with their climate strategies. Shareholder approval signals a commitment to sound management and aligned interests, enhancing credibility and building trust with stakeholders.

For instance, it mitigates reputational risks by demonstrating transparency and accountability. It also reduces the risk of greenwashing, as shareholders scrutinise climate actions, ensuring they reflect genuine efforts rather than mere rhetoric. Shareholder approval also helps mitigate litigation risks by demonstrating compliance with regulatory requirements and reducing grounds for legal disputes.

Current Developments in the French Legal Framework

Despite the benefits of shareholder engagement, the 2DII report determines that the French legal framework may still need to be revised. The non-binding nature of shareholder resolutions limits their enforceability, and some companies, like TotalEnergies, have refused to include climate action plan resolutions on meeting agendas. The French Sustainable Investment Forum (SIF) and ADEME have advocated for regulatory changes to strengthen shareholder influence on climate matters.

One proposed solution is amending company bylaws to incorporate climate considerations. Although this does not entirely circumvent the legal constraints, it offers a pathway for broader climate-related governance changes. The concept of mission-driven companies, which integrate social and environmental goals into their bylaws, represents another transformative approach, although it remains less prevalent.

A New Paradigm for Transition Plans

Recent EU regulations, such as the Corporate Sustainability Reporting Directive (CSRD), mandate the disclosure of climate action plans aligned with the Paris Agreement. These regulations require companies to include detailed transition plans in their management reports, outlining their strategies for achieving climate neutrality by 2050. This regulatory requirement is expected to improve the quality and credibility of climate action plans by standardising reporting and ensuring comprehensive coverage across sectors.

However, integrating climate action plans into the management report without a separate shareholder vote poses challenges to accountability. It may dilute the ability of shareholders to influence the content and ambition of transition plans if they are part of a broader set of disclosures approved in the annual report.

While recent EU regulations requiring climate action plan disclosures represent a positive step, the report shows that challenges remain in ensuring robust accountability and shareholder influence. Investors and stakeholders must continue to advocate for regulatory reforms that enhance the power of shareholder resolutions on climate matters. Emphasising the role of climate action plans as risk mitigation tools can further align corporate strategies with the goals of the Paris Agreement, ensuring a sustainable and resilient future.