2024 proxy season: what were the key environmental themes?
We highlight the environmental issues that dominated this year’s shareholder meeting season, with a focus on climate change, nature and biodiversity.
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The twin risks of climate change and nature loss are creating significant risks to investment value. We engage to encourage companies to address climate and nature loss risks to their business models, develop climate solutions and support the regeneration and restoration of nature in line with the Paris Agreement on Climate Change and the Global Biodiversity Framework, agreed at the UN Convention on Biological Diversity, COP15.
The main annual general and shareholder meeting season provides an opportunity for intensification of this dialogue with management teams. Where we believe that company management and boards aren’t managing these risks effectively, we have the option to escalate our engagement by holding company directors to account through votes against directors, votes on the board’s proposals and supporting shareholder resolutions.
Votes against directors
We continue to use our votes against directors where we believe one or more directors are falling short in their duties to oversee climate or other risks. During 2024, we took a more targeted approach on votes against directors. We focused on companies in high emitting sectors, or those on our climate engagement priority list, that had made insufficient progress in our climate expectations, despite engagement, and based on a regional tiering approach.
We also saw more overlap between governance and climate concerns, as some companies that have made insufficient progress on climate change mitigation sought to prevent shareholders from expressing concerns on their climate transition plans. We were concerned about companies resorting to litigation, using “no action requests” to the Securities and Exchange Commission in the US to block shareholder proposals or by omitting a shareholder proposal from the agenda.
Examples of votes against directors in 2024 include our votes at the US integrated oil and gas company ExxonMobil where we voted against five directors who are members of the board's governance committee. We believe that Exxon has made insufficient progress in climate mitigation and adaptation, and its recent litigation strategy has negatively impacted shareholder rights.
We took a similar approach at TotalEnergies SE, the French oil and gas company, voting against directors on climate and governance grounds. We also voted against a director at First Resources Limited, a Singapore-based producer of crude palm oil, due to concerns about lack of progress on climate mitigation and adaptation. We have been engaging with First Resources on both climate change and deforestation risk throughout the year.
Votes against the board's resolutions
We reduced our support for resolutions where companies put forward their own climate strategy for shareholder vote. As of early June 2024, our support reduced from 89% last year to 69% this year (see graph below). Notably, we reduced our support of climate transition plans, for example at European fossil fuel companies such as Shell, Glencore, Total Energies SE and Repsol.
Typically, these companies are well positioned relative to peers in the transition in other geographies; however, we escalated as we considered there was not sufficient progress made against our engagement asks after two or three years of engagement.
In 2024 we noted fewer companies putting their climate plans to a vote and some companies are considering eliminating this consultative mechanism or moving to a vote every three years. We believe “say on climate” votes are a useful mechanism to encourage engagement between shareholders and companies on their transition plans.
Co-filing shareholder resolutions
We were also involved in co-filing a shareholder resolution at Bunge, a soy producer largely operating out of Brazil. The Cerrado is one of the world’s most biodiverse savannahs and is home to around 5% of the world’s animals. Over half of the Cerrado biome has already disappeared, and both soy plantations and cattle ranches continue to expand into the region. Deforestation poses various risks to our clients’ investments, including regulatory, operational, and supply chain risks and also stalls global efforts on climate change.
When we began to engage Bunge in 2023, its sourcing policy appeared to allow sourcing from the Cerrado up until 2025, provided it did not constitute “illegal” deforestation in line with Brazil’s Forest Code. Collaborative engagement with the company did not address our concerns about this. In December 2023, we co-filed a resolution asking the company to prepare a report detailing whether its existing policies incentivise an increase in deforestation and land conversion prior to its December 2025 cut-off date, and if so, to identify and take immediate corrective measures at the board’s discretion.
After further dialogue with the company, in February 2024, we agreed to withdraw the shareholder resolution because Bunge agreed to several actions to address our concerns. These included to undertake 100% geospatial monitoring for soy and to write the report requested on the risks of incentivising deforestation.
The company has since established a clear cut-off date of 31 December 2024 for deforestation and conversion of natural vegetation in its latest sustainability report, and achieved 100% traceability in its direct soy supply chain and 98% in indirect sourcing. We will continue to engage, monitor, and encourage this company’s progress.
Voting on shareholder resolutions
Our support for shareholder resolutions on climate change increased in 2024 (see graph below with data as of 6 June 2024) and we saw an increase in the number of climate change shareholder resolutions filed and some recovery in support for resolutions from the market relative to 2023. A trend that we also saw is that resolutions specifically designed to request companies to reduce or disregard climate risk (“anti-ESG” resolutions) doubled in number from 2023, but from the market support for these resolutions was insignificant (averaging below 3%).
As nature loss is rising up the investor agenda, so too is it working its way into more shareholder resolutions. Shareholders are increasingly recognising the risks that nature loss poses to the economy. This proxy season, we saw a diverse range of shareholder proposals aimed at tackling the principal drivers of biodiversity loss such as land conversion and pollution in addition to climate change. These include:
- Lobbying alignment with the Paris Agreement: Several shareholder resolutions this proxy season requested businesses to review their direct and indirect lobbying activities against their own commitments to the Paris Agreement goals and climate targets. We were generally supportive of this type of shareholder resolution. Shareholder resolutions on climate lobbying such as at Paccar, NextEra and NipponSeel saw more shareholder support than in 2023 (close to 30%).
- Clean energy financing ratio at banks: A group of shareholders filed in several North American banks a shareholder resolution regarding the banks’ total financing through equity and debt underwriting, and project finance, in low-carbon energy supply as a proportion of that in fossil-fuel energy supply. Some banks reached agreement with the shareholders which led to the withdrawal of resolutions. When there was opportunity for us to vote, we supported this resolution as we believe that shareholders would benefit from such disclosures.
- Capital expenditure (capex) alignment with Paris Agreement: A resolution was filed at Equinor requesting it to align its capex to the goals of the Paris Agreement. We believe the capex resolution at Equinor was worded in a way such that improved disclosures from the company would help shareholders better assess how it is addressing climate-related risks.
- Ecosystem use change: We saw several shareholder resolutions tackling companies’ contributions to deforestation risk. These focused mainly on value chain risk through the materials and commodities that they source (such as soy, cattle, and palm oil), for example at Ford and Tyson Foods. We voted for a shareholder resolution at General Motors which asked the company to “disclose the company’s policies on the use of deep-sea mined minerals in its production and supply chains”. We also supported a similar resolution filed at Tesla. Deep sea mining has been touted as a potential solution to the growing pressure on resource supply and terrestrial land conversion practices. However, it is also viewed as a highly controversial activity posing significant risk to marine ecosystems and has been subject to significant media and regulatory scrutiny over the last year.
- Pollution: Addressing pollution is a key tenet of the Global Biodiversity Framework. We saw ten resolutions on plastic pollution and circular economy packaging solutions. We have seen an increased focus by shareholders on agrochemical use contributing to pollution, biodiversity loss and greenhouse gas emissions. We voted in favour of a resolution at Kellanova, the food and beverage company, asking it to issue a report on the risks it associated with pesticide use in its supply chain.
- TNFD: We also saw a proposal aligned for the first time with the Taskforce for Nature Related Financial Disclosures (TNFD) asking PepsiCo to report on its risks, impacts and dependencies on nature. The TNFD is a global, market-led, science-based and government-supported initiative to help companies and financial institutions incorporate nature into their decision-making. We voted in favour of this shareholder resolution, as we are encouraging companies to start reporting on their risks, impacts and dependencies on nature. As many companies have committed to be early adopters of TNFD next year (including Schroders), we expect this shareholder focus on nature-related risks to continue to grow.
We will continue to engage with companies where we see material climate and nature-related risks and use the proxy season as an opportunity to intensify dialogue and escalate engagements.
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