Climate change proposals are quickly moving from being contentious issues pushed through by activist investors to something that attracts broader support from more mainstream investors, which mirrors the trend of climate risk becoming a more salient issue to society.

September 20, 2022

The Rise of Say on Climate Proposals

Below is an excerpt from ISS Corporate Solution’s recently released paper “The Rise of Say on Climate Proposals.” The full paper is available for download from the ISS Corporate Solutions (ICS) online library.

Key Takeaways:

  • Shareholders’ focus on climate change has grown significantly over the past few years
  • Say on Climate proposals made by management are on the rise and so is shareholder scrutiny, as evidenced by decreasing support levels
  • Key elements of well-constructed Say on Climate proposals are alignment with the Paris Agreement, commitment to annual review of emissions targets, executive compensation linked to climate targets, and compliance with the Task Force on Climate Related Financial Disclosures (TCFD)
  • Issuers’ overall alignment with TCFD disclosure requirements stands at just 28%
  • Only a small share of companies have committed to Science-Based Targets or linked executive compensation to these targets

Investors, governments and the public in general are exerting growing pressure on companies to reduce their negative climate impact. An increasing number of climate-related shareholder proposals have come to a vote at annual general meetings over the past three years. They include setting ambitious Paris Agreement-aligned GHG emissions reduction targets, improving emissions-related disclosure including data on Scope 3 emissions, and adopting various policies aimed at addressing climate change concerns.

Last year saw a rise in “Say on Climate” votes proposed by corporate management as boards, especially in France and the U.K., become more inclined to put forward their own climate resolutions rather than receive them externally. They include requests for shareholders’ approval on company climate transition plans and progress updates as well as climate-related financial disclosures. While the number of such proposals increased in 2022, the overall level of support declined, reflecting evolving investor expectations that, at least for now, appear to be getting sterner.

In this paper, ISS Corporate Solutions examines current trends in climate related proposals, including the growing number put forward by corporate management. We also break down the key elements of a well-constructed climate proposal and look at how often companies adhere to the highest standards in terms of Science-Based Targets, disclosures and links to executive compensation.

By: Aya Batyrbekova, Vice President ESG Corporate Advisory, ISS Corporate Solutions

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