Investor engagement on climate change increased markedly in 2021. 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.
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, and the campaign received support from other investors and the French Sustainable Investment Forum. 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.”
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.Say on Climate: Investor Distraction or Climate Action? – MSCI