Webinar with Sir Chris Hohn


Companies are responsible for at least 35% of global emissions, but only a small fraction disclose their emissions or have a climate transition action plan specifying short-term targets and actions. The Say on Climate AGM resolution requires (1) annual disclosure of emissions and of a plan to manage those emissions and (2) an annual advisory vote on the plan and performance relative to plan. It works because it is a reasonable request by shareholders which can garner widespread support, whilst requiring companies to commit to concrete actions that will deliver the transition to net-zero. The information disclosed provides clear, transparent evidence to enable engagement with the board and justify voting by investors for those companies that fail to take effective action to reduce their emissions.

Disclosure alone cannot drive the change we need to see from businesses to address climate change. The Say on Climate initiative combines disclosure with an AGM shareholder vote. Ad hoc voting without public explanation against individual directors has so far failed to deliver results. Instead, we need sustained shareholder pressure through systematic engagement and voting, based on evidence, to secure the necessary change.

TCI filed a resolution in 2020 on Aena (the world’s largest airport group) for a Say on Climate which won 98% shareholder support including from BlackRock, Vanguard and proxy advisors ISS and Glass Lewis. This led to a significant improvement in Aena’s climate transition action plan. Major companies including Unilever, Canadian Pacific, Royal Dutch Shell, Rio Tinto, Glencore and Moody’s have recently adopted a Say on Climate for their 2021 AGMs.

One concern is whether a Say on Climate would burden investors with analysis of climate transition plans and performance. But how can investors hold boards to account if they do not have the relevant information? Another concern as to the effectiveness of the Say on Climate is whether poor quality plans will be produced by companies and rubber stamped by shareholders. In order to address this concern we need benchmarks as to what constitutes best practice for the components of a plan and targets. The recently launched Climate Action 100+ Net-Zero Company Benchmark provides a good framework for assessing plans.

All plans need to contain short, medium and long-term targets which are aligned with the Paris Agreement. We also need a robust independent grading of those plans, and of performance relative to plans. Alongside this, we need independent auditing of company performance in reducing emissions. Say on Climate recommends reporting of emissions which is consistent with Task Force on Climate-related Financial Disclosures (TCFD) – it does not compete with TCFD. Absolute emissions and emissions intensity should be used as a clear and simple metric to grade performance. Whilst investors may not find it obvious how to evaluate all plans ex ante, it will be straightforward to evaluate them ex post based on performance. Critically, CEO compensation must to be tied to plan performance.

Whilst the AGM vote is advisory only, investors who choose to vote against climate transition plans and performance should also vote against directors of companies in order to force an improvement in their performance. For example, an initial vote against a sustainability or lead independent director could then escalate in the subsequent year to a vote against the Chairman if necessary. In addition, shareholders should consider nominating alternative directors with the skills required to address the climate transition.

The concern has been voiced that weak results from Say on Pay votes in the US are relevant to Say on Climate, but it is not a good analogy. Higher pay may be justified but increasing emissions intensity can never be justified. We believe that shareholders care a lot more about climate change than executive pay and will be willing to properly hold companies to account.

The Children’s Investment Fund Foundation (CIFF) is working with and funding NGOs, asset managers and asset owners to file more than a hundred Say on Climate resolutions globally, starting in 2021. However, it is in the hands of investors where this goes – it can be as powerful as investors want it to be. They are waking up to the fact that climate matters for long-term investment performance and company sustainability.

It is critical that all investors now work together to combine the power of annual disclosure of actual emissions and a plan to manage those emissions with an AGM vote. In the words of Mark Carney, the co-founder of TCFD and former governor of the Bank of England and Bank of Canada, a Say on Climate “would establish a critical link between responsibility, accountability and sustainability”. A shareholder Say on Climate must now become a market, regulatory and social norm.