Corporates’ annual general meetings (AGMs) are a time for investors and their stewardship strategies to shine. ESG Clarity asked industry professionals to find out what they expect – and what they hope – to see this AGM season.
Louisiana Salge, EQ Investors head of sustainability, is not feeling hugely optimistic about how asset managers will use their role as stewards this year as she said she has seen a telltale decline in their voting strategies.
“And it appears many people are already changing their… voting policies to be less forceful on issues like climate change so they don’t have to support them as much.”
At EQ, Salge said she often engages asset managers around having de-facto standards for how they will vote as voting policies are currently “super vague” across the board.
“That leaves them the wriggle room to not support it if it gets politically challenging, which is what is happening now,” she said.
Climate accountability
Despite this wavering of resolve, there are many other factors setting to boost accountability this year. For example, proxy adviser Glass Lewis has brought in board accountability for climate-related issues.
It is looking for large-cap companies – in industries where the Sustainability Accounting Standards Board has found companies’ greenhouse gas emissions are a financially material risk – to make thorough disclosures in line with the Task Force on Climate Related Financial Disclosures and clearly define oversight responsibilities for climate-related issues. Where those are missing it might now advise voting against re-election of board members.
Lindsey Stewart, director of investment stewardship research at Morningstar, is fairly positive about the role asset managers may play in holding corporates’ feet to the fire in 2024.
“I expect the level of support for Say on Climate (SoC) votes, which I understand is around 90%, will either stay around that level or might even decline slightly as managers get more familiar with what’s supposed to be in transition plans and the regulation is more embedded,” said Stewart
An increased emphasis on Scope 3 reporting may be one factor to drive more votes against, he said.
However, he also noted we probably will not see the volume of Say on Climate (SoC) votes increase much from the 2023 AGM season. According to business consultants Morrow Sodali SoC votes in Europe dropped to 17 last year, from 36 the year before.
Firmer frameworks
Salge said the improved reporting frameworks available now compared to previous years would be evident in the shareholder resolutions we see in 2024.
“We’re seeing better frameworks available for us to push companies in terms of disclosures – the rollout of the International Sustainability Standards Board, for example. And I think off the back of that you will see more disclosure-related shareholder resolutions because people have been almost waiting for the frameworks that help them enhance reporting.”
Another example of a framework which could translate to shareholder resolutions, according to Salge, is Partnership for Carbon Accounting Financials closing a loophole which meant banks’ facilitated emissions – in effect, financing fossil fuel companies by issuing bonds to them – was not captured in their reporting.
“Last year, with this disclosure framework, they finally agreed on how banks should report on this. [Previously] loads of the banks had said, ‘We’re not going to report until… We’re not going to report until…’
“This is the type of thing that will give more grounds for investors to say we expect you to report now that we’ve agreed [on how it should be done].”
On the up
In terms of the topics that will be the focus of resolutions, whether linked to reporting or otherwise, biodiversity and natural capital are due to take up more space this year, according to Stewart.
“As will the role of technology with generative AI, cybersecurity and protection against misinformation and disinformation. Those are going to start to rise up the agenda quite a lot,” he said.
On the environment side, he sees a move towards a broader focus than on CO2 emissions.
“I think methane disclosures are becoming an area of focus as well. The regulatory direction in the US is headed that way too so we might get more [resolutions] around that,” commented Stewart.
Salge also came back to developments in the US, noting presidential elections there this year will likely create more of a focus on corporates’ political affiliations and lobbying activities this AGM season. She said this also links to the net zero commitments asset managers are making and how they now need to align their, and their investee companies’, advocacy policies with those goals.
Growing expectations
ShareAction deputy CEO, Simon Rawson, said performance from asset managers in the 2023 proxy season was poor and the group hopes for better this year.
“Certainly, the expectations of ordinary savers, pension holders and other asset owners are growing and we think they will be increasingly difficult to ignore.
“This year we need to see the world’s largest asset managers voting for resolutions that address urgent climate, biodiversity and social issues. Although support from European asset managers ticked up last year, support from large US managers fell sharply.”
The geographic spread of companies where resolutions were filed shows more action could be taken in Europe, said Rawson: “While the number of resolutions at US companies has increased markedly in the past two years, filing at European companies remains rare. Credible stewardship requires the willingness to use escalation tactics where needed.
“A frequent excuse we hear from managers is that they don’t like the content of the resolutions being put forward. If they don’t like it, they must do it themselves.”
