The details of each company’s climate transition action plan will vary case-by-case but the principles of transparency and accountability are the same. Plans must include clear targets, specific actions, strong governance and an annual shareholder vote.
The first step is dialogue and negotiation. Debate is healthy and can lead to the right outcome on its own. If companies refuse to publish climate transition action plans and put these to an annual vote, then large shareholders must force this. These resolutions are not difficult for shareholders to file in most jurisdictions, as long as they have sufficient holdings. The threshold varies by country.
Climate change impacts every business and will affect shareholder returns. Shareholders own the company. They need a vote to ensure a good plan is produced and delivered on.
Every company in every sector needs to reduce its full scope of emissions to net zero. A credible climate action transition plan shows shareholders and other stakeholders that the company is well-positioned for this transition. Moreover, by moving quickly to publish a credible plan and put this to a shareholder vote, companies can gain a competitive advantage.
A year is a long enough period to see if progress against the plan is being achieved. The magnitude and accelerating pace of the impacts of climate change on companies mean that plans and votes must be annual. This frequency also provides for clear and consistent communication. While the accountability mechanism is similar to ‘Say On Pay’, the climate imperative is even greater.
We are proposing an advisory, non-binding vote on each company's climate transition action plan. This means there are no legal implications on the company if shareholders reject a climate transition action plan at the annual vote.
Benchmarks for measuring the quality of a company’s climate transition action plan are already widely available and continuously improving. If a company fails to make adequate improvements to its climate transition action plan in response to a shareholder vote, then shareholders can replace the management or the board of the company. This approach is additional to, not instead of, wider voting practices relating to climate change. Companies will increasingly come to realise that it is in their own self-interest to produce a good plan.
Shareholders don’t understand why regulators aren’t making shareholder votes on climate action transition plans mandatory, and regulators don’t understand why shareholders are not doing this for themselves. We are calling on the UK and Italy, as Presidents of the 2021 G7 and G20 respectively, to make this a priority leading up to COP26.
The Task Force on Climate-Related Financial Disclosures (TCFD) recommendations provide a crucial framework for reporting, but these are not sufficient on their own. In addition to disclosing in line with the TCFD, companies must set out what specific actions they will take to meet their commitments in the form of a climate transition action plan (see here).
In addition to this guide, resources and guidance are available for developing and implementing a credible climate action transition plan. Key references include: the B-Team, CDP , the Science Based Targets initiative, the Task Force on Climate-related Financial Disclosures and WeMeanBusiness.
No, resolutions in favour of annual shareholder votes on climate transition action plans are complementary to other votes on critical climate matters, such as disclosure, audit and other board votes.
All listed companies have an influence on climate change and all need to take action to address their emissions.