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ESG at shareholder meetings: A dangerous trend?


ESG at shareholder meetings: A dangerous trend?

ESG issues are increasingly finding a place on AGM agendas, where shareholders can put direct pressure on companies. This spring, four major Australian companies announced plans to debut their climate strategy plans at their next AGM. What does this trend mean for companies in this country?

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Activist shareholders press ahead
The three oil companies Oil Search, Santos, Woodside Energy and the mining giant Rio Tinto have taken a big step: they are the first companies in the world to have their climate strategy voted on at the AGM. The results of the votes of the four companies, which belong to the Australian ASX50 index, are not binding for now. However, this example illustrates that more and more companies are recognizing the urgency and importance of environmental issues and want to put them to a vote – a bold move. Or a brilliant PR strategy?

In any case, the four ASX companies are thus getting ahead of the global investor coalition “Climate Action 100+” – the investors represented there want to persuade the 167 highest-emission companies worldwide through targeted calls and decisions to initiate measures to reduce their emissions to net zero by 2050. That means companies must offset their own emissions by removing an equal amount of emissions from the atmosphere. Many activists and investors, including Blackrock, are already calling for stronger ESG disclosures. The term “Say on Climate” was developed for this.

Large corporations buckle
A similar campaign had already prompted a rethink at Shell. The Dutch group “Follow This” bought enough shares in the Dutch oil and gas company to be able to introduce a resolution at the AGM in 2017. The reason for the resolution: the company should include Scope 3 greenhouse emissions in its overall accounts and corporate targets. These are emissions caused by the upstream and downstream supply chain. Until then, Shell only counted Scope 1 (direct emissions) and Scope 2 (indirect emissions from outside electricity and heat) emissions in its own environmental footprint.

Follow This succeeded: while Shell’s board advised shareholders not to support the resolution, dismissing it as “inappropriate,” six percent of the capital present voted in favor and another seven percent abstained – including a number of leading Dutch investors. This was an embarrassment for Shell, as normal voting results on the company’s line are 99% percent. A short time later, Shell included Scope 3 emissions in its own targets. Follow This is taking similar action with oil and gas companies Equinor and BP.

Proxy advisors focus on ESG
ESG issues are not entirely new at AGMs. In particular, governance issues such as the appropriateness and transparency of executive board compensation or diverse, competent supervisory board membership have been generating discussion among investors and shareholders for decades. Increasingly, however, environmental and social aspects are also playing a role. Many investors have specific ideas about which business practices they do or do not support.

Proxy advisors also play an important role here: Since asset managers who manage the assets of asset owners do not have the time or resources to analyze all the companies and their agenda items at the AGM, they hire proxy advisors to give them voting recommendations. These are based on criteria that asset managers pre-define – including more and more ESG criteria. So proxy advisors take a close look at a company’s ESG performance. Poor ESG performance can already have a negative impact on voting results and therefore for company management. It is recommendable, and not just for PR reasons, to show initiative today and have your ESG strategy, or at least parts of it, approved so that you don’t get a nasty surprise at a later AGM…

Do you want to find out whether your ESG strategy is AGM-proof? We can support you in doing so. Feel free to contact us!