By Cynthia Williams, Janis Sarra and Jackie Cook
Investors view climate change as posing risks to long-term portfolio values and see the opportunity with companies that are innovating sustainable technologies. The importance of managing climate risk is confirmed by a new study on proxy-voting, Climate voting by large Canadian investors 2016-2017, which reveals that climate change is high on the agenda of significant Canadian investors.
The survey, undertaken by the Shareholder Association for Research and Education (SHARE) for the Commonwealth Climate Law Initiative (CCLI), catalogs the submission of climate-related shareholder proposals globally and the voting records of 18 major Canadian institutional investors during the 2017 proxy season. Of 86 shareholder resolutions submitted, 95% were filed with US-domiciled companies. The voting records of eight Canadian pension funds and ten large Canadian asset managers were examined.
Top of the list of governance changes that investors are seeking is that companies develop a climate strategy or risk report related to the impact of meeting the 2° C climate target agreed to by the Canadian and other governments. A significant number of resolutions on improved disclosure of climate risk management, lobbying policies, initiatives in renewable energy and energy efficient technology, and a call for targeted GHG emissions reductions were also filed. Climate-related proposals are winning strong support from shareholders, including 62% at a recent Exxon Mobil vote.
The survey found important differences in the climate voting records based on 21 ‘key votes’ that SHARE chose as representative of the range of requests and industry sectors. Pension funds demonstrating strong support for climate shareholder proposals are OPTrust, British Columbia Investment Management Corporation, Canada Pension Plan Investment Board, AIMCO, and Caisse de dépôt et placement du Québec (CDPQ). Investment funds with the strongest support include RBC Global Asset Management, Manulife, BMO Global Asset Management and TD Asset Management while Scotiabank and BlackRock are trailing.
Proxy-voting is one of several strategies that institutional investors use to press companies to effectively manage the transition to a lower carbon economy in a way that will minimize risks and maximize opportunities for sustainable activity. Other strategies include direct engagement with corporate boards on their climate-risk management practices, including pressing boards to become ‘climate competent’, and pressing securities regulators to require enhanced disclosure of climate-related financial risk management. All the pension plans studied take part in collaborative engagements with portfolio companies on climate issues, and most support regulatory initiatives to improve climate disclosures in Canada and internationally in line with recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
The SHARE survey is a snap-shot of shareholder voting on climate over a one-year period. It is not a full picture, as currently investment funds are not required to disclose publicly how they exercise their proxy-votes, so the data in the survey are taken from the websites of investment funds that voluntarily disclose their voting record. The snap-shot also does not include resolutions where the company agrees to the measures requested by shareholders through private discussion and a resolution is not brought to a shareholder meeting.
Investors differ in how they mix proxy-voting and direct engagement and in their rationale for voting a particular way. Some will not support resolutions if they believe companies are making measurable improvements in addressing greenhouse gas emissions or implementing effective climate risk management strategies. For the 2017 proxy-season, the Ontario Municipal Employees Retirement System and Ontario Teachers’ Pension Plan (OTPP) had the lowest level of support for voting in favour of climate proposals among the pension funds surveyed. Yet OTPP is engaging with corporate boards on climate change and is, along with some of its peer funds, recognizing that its fiduciary obligation includes carefully assessing climate change risks, emphasizing to companies the importance of managing climate change risks and developing solutions, and investing in clean energy and innovative technologies such as carbon capture and storage.
Even though only two climate proposals came to a vote at Canadian issuers in the 2017 proxy season, shareholder resolutions on climate issues have been filed in Canada in the past. A shareholder proposal at Suncor Energy in 2016, for example, called for additional disclosure relating to the companies’ exposure to climate change risks. It received 98.2% shareholder support and was supported by management.
Shareholder resolutions are more prevalent in the United States than Canada. One reason is that prior to 2001, corporate laws in Canada severely restricted what could be submitted as a shareholder resolution and institutional investors developed the practice of meeting in-person with corporate directors to give their views on governance.
Institutional investors are key players in helping Canada shift to a sustainable low-carbon economy. Sixteen Canadian investors have signed up to participate in Climate Action 100+, a five-year investor-led initiative to engage systemically important greenhouse gas emitters that could drive the clean energy transition and help achieve the goals of the Paris COP21 Climate Agreement. Investors are calling on companies to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures. Four Canadian companies are among these largest global emitters. Seven of the Canadian pension funds and asset managers in the SHARE survey have signed up to this initiative.
Read the full report here.
Dr. Janis Sarra is Presidential Distinguished Professor and Professor of Law, Peter A. Allard School of Law, University of British Columbia and co-principal investigator, CCLI.
Professor Cynthia Williams, Osler Chair in Business Law, Osgoode Hall Law School, York University and co-principal investigator, CCLI.
Jackie Cook, Director, Proxy Voting Research and Operations, SHARE, and founder and CEO of Fund Votes Research Ltd.