Shareholders are placing increased value on non-financial factors when making investment decisions. Some of these factors are environmental and social issues. In particular, shareholder proposals on climate change have recently gained some traction.
In 2016, a record breaking number of climate change resolutions were filed. This shift in focus is attributed to the 2015 Paris Accord, where 195 nations committed to take measures to mitigate global warming. The accord’s objective was to garner a global response to climate change, and it succeeded in enlisting a pledge from these nations to limit temperature increases to well below 2 degrees Celsius.
Interestingly, this year, there have been 3 climate change shareholder proposals that were passed during the 2017 proxy season in the United States despite boards’ recommendations to vote against these proposals. The boards argued that the information was already included in other reports, that there were strategies already in place addressing the risks of a lower carbon economy, and that there are no regulatory requirements developed at this time. The passing of the shareholder proposals is a bold step, which reflects shareholders’ interest in companies’ actions to meet the Paris Accord commitment.
Today’s investors are taking proactive steps to ensure the long term viability of their investments rather than reacting to regulatory changes. An asset management firm boldly asserted: “[a]s a long-term investor, we are willing to be patient with companies when our engagement affirms they are working to address our concerns. However, our patience is not infinite—when we do not see progress despite ongoing engagement, or companies are insufficiently responsive to our efforts to protect the long-term economic interests of our clients, we will not hesitate to exercise our right to vote against management recommendations”. This signals to companies whose assets and businesses are subject to climate change risk to take a more proactive approach to address climate concerns.
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The author would like to thank Maha Mansour, Summer Student, for her assistance in preparing this legal update.