By Dieter Holger July 21, 2022
Source: Biological Diversity Photo / Image Source: Unsplash, Amy Hirschi
Directors at businesses seen as behind the curve on climate change are getting less shareholder support. In some cases, changes have followed.
Calpers, the U.S.’s biggest pension fund, said it voted against a record 95 directors at 26 companies this year after they didn’t respond to its requests to set more aggressive climate policies. Investors are increasingly voting against the election of corporate directors to get companies they see as laggards on climate change to raise their ambitions.
So far this year, investors have cited climate change as a reason for opposing the election of a management-backed director at 225 U.S. companies, up from 157 in 2021 and 83 in 2020, according to shareholder disclosures. The preliminary 2022 data, which includes figures through July 7, was analyzed by Hannah Orowitz, U.S. head of environmental, social and governance at Georgeson LLC, which provides strategic shareholder services to corporations and shareholder groups.
Votes on corporate directors typically take place at annual shareholder meetings, along with votes on proposals concerning how companies should disclose or set targets on climate change and diversity, which are also becoming more common. Although votes on proposals aren’t legally binding in the U.S., shareholders do have the power to vote directors out of the job. The opposing votes tallied by Ms. Orowitz were largely cast by European investors and sustainability-oriented managers that often hold smaller stakes in U.S. companies, she said. So far, they have resulted in dips in support for the directors in question rather than wholesale rejections. But big U.S. institutions such as asset manager Nuveen LLC and the California Public Employees’ Retirement System are joining in, as climate-concerned investors ponder what to do beyond voting for sustainability-related proposals.
“How do you amplify the visibility of this issue? You have to create a very structured, transparent campaign—and yes, absolutely voting against the director sends a very clear signal,” said John Hoeppner, head of U.S. stewardship and sustainable investing at Legal & General Investment Management America, an early adopter of the tactic.
LGIM, the $1.8 trillion asset-management arm of London-based financial-services company Legal & General Group PLC, over the past five years has voted against the election of the chairmen of more than 200 companies that it said weren’t taking climate change seriously.
Lessons from the diversity push Investors are following a pattern set by their successful push to increase diversity in corporate leadership, Mr. Hoeppner said, adding that today, nearly every S&P 500 company has at least one woman or person of color on its board. Investors “learned from that” when approaching climate change, Mr. Hoeppner said.
LGIM’s voting suggests companies are taking steps to appease investors. The asset manager put 80 companies on notice in June, down from 130 last year, after they improved disclosures, set climate targets or introduced policies, Mr. Hoeppner said. Voting takes place in the 12 months after companies are warned, giving them time to make changes and avoid votes against their chairmen.
Warren Buffett’s Berkshire Hathaway Inc. is among the companies that investors said haven’t done enough on climate change. BlackRockInc., which holds a stake of more than 6% in the conglomerate, said last year it voted against the re-election of two Berkshire directors, citing “shortfalls in the company’s governance practices and climate action planning and disclosure.” One of the directors, Thomas S. Murphy, stepped down after an illness, Mr. Buffett said in February, and died in May. The other, Walter Scott Jr. , died last year. Both were in their 90s.
Berkshire didn’t respond to requests for comment. Some Berkshire directors have received less support in the past two years after the conglomerate faced criticism for failing to address climate change, according to Eli Kasargod-Staub, executive director of Majority Action, a nonprofit that pushes shareholders to take action on climate change and other issues.
Mr. Kasargod-Staub said a minimum requirement for many investors comparing companies’ positions on climate change has been whether the businesses report information in line with recommendations from the Task Force on Climate-Related Financial Disclosures, or TCFD.
But as disclosures spread, some investors are taking aim at targets they see as unambitious, Mr. Kasargod-Staub said. He said Majority Action’s research showed that U.S. investors representing corporate stakes valued at nearly $8 trillion have policies in place to vote against directors if companies don’t have aggressive climate-change targets in place, such as those aligned with the 2015 Paris accord to limit global warming. One company where director support recovered following new climate measures is PPL Corp. , which was one of the few publicly traded U.S. utilities that by 2021 hadn’t set a net-zero target, or achieving a balance between emissions produced and those removed from the atmosphere. PPL Chairman Craig Rogerson earned 78% support last year.
That recovered to 94% this year after the Allentown, Pa., company set its net-zero goal following the 2021 voting results. Management-backed directors at U.S. companies typically enjoy more than 95% support, according to proxy adviser Institutional Shareholder Services Inc.
“We recognize that climate change and emissions reductions are important to many shareowners, and we value the input we receive from our shareowners,” a PPL spokesperson said, adding that the company has reviewed its climate targets and raised them over the years.
Investors have different approaches for deciding which directors to oppose. LGIM votes against chairmen, while Nuveen and Calpers single out directors overseeing sustainability.
Nuveen, which manages more than $1.2 trillion, voted against directors at more than 70 companies for climate-related reasons this year, the first time it has made such a move, said Peter Reali, a member of the firm’s responsible investing team. The effort came after Nuveen, a subsidiary of Teachers Insurance and Annuity Association of America, sent letters in 2020 asking for improved disclosures and targets and stronger oversight of climate risk.
“If we haven’t seen a willingness to move along the journey, then yes, we are pulling the trigger on voting against boards,” Mr. Reali said.
Nuveen plans to identify the directors it opposed and detail its reasoning later this year. Calpers, the U.S.’s biggest pension fund, said it voted against a record 95 directors at 26 companies this year after they didn’t respond to its requests to set more aggressive climate policies.
Is it working? It is hard to pinpoint the role played by one measure, such as voting, among the factors that can prompt companies to change their positions on an issue.
For example, a spokesperson for NextEra Energy Inc., another large U.S. utility that last year lacked any net-zero target, said its recent introduction of an ambitious climate plan “wasn’t a reaction to any specific stakeholder request” but was part of a long-term strategy shift. The company’s lead independent director Sherry Barrat earned below-average support at shareholder meetings in 2021 and 2022. Ms. Barrat declined to comment through the NextEra spokesperson.
Simiso Nzima, managing investment director for global equity at Calpers, offered one broad way of assessing whether things are going in the right direction: “A decrease in the number of ‘against’ votes over time is a sign of progress,” he said.
Calpers said it voted against 133 directors over lack of progress on increasing board diversity this year, for example, down from 468 in 2018, attesting to the steps companies have taken.
Mr. Hoeppner of LGIM said the parallel with diversity isn’t perfect, because it is easier to demonstrate progress when it comes to something as clear-cut as the representation of a certain group at a company.
Establishing shared standards for how investors should tackle climate change, he said, would be a “huge step forward.”
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