Say on Climate: Who we are and what we doAccelerating shareholder action on climate change
Listed companies account for 40% of all climate-warming emissions, a number higher than previous estimates, yet most are failing to take sufficient action to reduce their impact or disclose their emissions.
The Say on Climate initiative was launched in 2020 with the aim to get companies to disclose credible climate transition plans and be held accountable for delivering them. Since then, it has developed into a global movement with shareholder advocates in the U.S., Canada, EU, UK, and Australia. Major companies have engaged with the initiative to put their climate plans to an advisory vote, including Moody’s, Aena, and Shell. Unilever was among the early adopters, engaging with Say on Climate to create a robust and comprehensive climate transition plan and putting it to a shareholder vote in 2021. Their plan can provide useful guidance to companies in developing and communicating their own credible “net zero by 2050” strategy as well as offering a sound narrative around the relationship between people, planet and profits. (Read our full Unilever CTAP case study here).
A new investor mechanism for climate engagement
Initially, the Say on Climate initiative was created to establish better dialogue between companies and investors about the actions they are taking to reduce their emissions. As the implications of climate change grow more profound and regulators become increasingly active, the link between sustainability and financial performance tightens.
In response to such a threat, Say on Climate’s early focus centered around creating a culture of shareholder feedback in the form of an annual advisory vote at company AGMs. Say on Climate votes equip investors with a tool to ensure companies provide credible plans on how they will transition their business to a more climate-secure future. The Say on Climate mechanism helped to demonstrate that while some companies were offering abstract long-term goals, virtually none were providing investors with clarity on their strategies to implement these changes in the short-term and thereby ensure they were on track to meet such targets. For many listed companies, such changes require making unprecedented emissions cuts and would therefore entail substantial realignment of capital expenditure, as well as changes to internal governance and incentive structures. While it is the role of company management to devise these changes, shareholders, as the owners of these companies, must be given the opportunity to respond to such a significant change in business direction and understand its impact and consequence for long-term shareholder value. Therefore Say on Climate has become an important feedback mechanism for investors to engage with companies on climate transition plans. Where they feel that a company has failed to provide a sufficient transition strategy, they may reasonably vote against it and call for a greater climate-related management resolution.
Moving from engagement to escalation
Recognising that plan disclosure and voting are only part of the story, the emphasis of the Say on Climate mechanism has evolved to focus also on the role the vote can play in providing the evidence and justification for escalation where climate targets have not been met.
Say on Climate has helped to pave the way for the mandatory climate disclosure regulation is coming in the EU, UK, US, Japan and globally, and continues to work to secure the necessary action; to sustain investor pressure through evidence-based engagement and escalation tactics.
Advisory Say on Climate votes allow shareholders to express dissatisfaction with a company’s plans and performance, before using more disruptive escalation options. If companies fail to respond adequately to Say on Climate votes, this helps create a clear path for escalation at the next AGM season. Holding companies to account for failing to disclose adequate plans may include tying CEO compensation to plan performance, or voting for the reelection of company directors.
Establishing robust climate transition plans
Now that Say on Climate is a widely-recognised tool for investor engagement, shareholder focus is increasingly on climate transition plans, and what constitutes a good plan.[a] Climate transition plans are company and sector specific, but a credible plan should provide high-level targets to mitigate climate risk, interim milestones, with short and long-term goals, demonstrable alignment of capital expenditure with transition targets, a reassessment of participation in industry associations that lobby governments to soften greenhouse gas reduction legislation, actionable steps to meet those targets, and transition governance, including linkage of performance to remuneration.
This year, investors should set clear expectations on the content of the transition plans that companies must disclose and update voting policies accordingly. They should also pre-disclose voting intentions ahead of Say on Climate votes, and set clear expectations on company actions in response to votes. Investors can use previous votes and company action to provide evidence and justification for escalating to votes against directors as well as other routine votes on remuneration reports, audit reports and accounts.
The Climate Action 100+ Net Zero Company Benchmark is a standardised and comparable transition plan assessment that is backed by $52 trillion of assets under management.
All companies around the world have the opportunity to become active participants in the fight against the climate crisis with a proactive plan to reach a net zero carbon future. While the Say on Climate initiative aims to make transition plans and accountability a market, regulatory and social norm, investors are waking up to the fact that climate matters for long-term investment performance and company sustainability, and a climate transition plan can be as powerful as they want it to be.