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E-MailJessie Giles is Research Director, Eli Kasargod-Staub is Co-founder and Executive Director, and Bryant Sewell is Senior Research Specialist at Majority Action. This post is based on their Majority Action memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).
In 2021 proxy voting by the largest asset managers remained wholly insufficient to the scale and urgency of the climate crisis, according to a new report by Majority Action. Following years of accountability efforts from clients, fellow shareholders, and climate advocates, substantial progress has been made in asset manager support for climate-related shareholder proposals. Despite this, benchmarking of the world’s largest greenhouse gas emitters by the investor initiative Climate Action 100+ demonstrates that the companies primarily responsible for the production and consumption of fossil fuels causing climate change are not on track to decarbonize their operations by 2050.
Majority Action recommends that asset managers and owners enact their fiduciary responsibility for mitigating climate risks to their clients’ and beneficiaries’ portfolios by adopting or updating proxy voting policies to target limiting warming to 1.5°C, setting expectations that portfolio companies will take action to reduce their emissions consistent with that goal, and enabling voting against directors at companies that fail to do so. They should also establish and communicate clear, industry-specific standards for assessing corporate decarbonization plans aligned with limiting warming to 1.5°C, in particular in the climate-critical industries of oil and gas, electric power, and financial services, and disclosing company assessments against those standards. Asset owners are urged to revise asset manager search criteria, requests for proposals and assessments to include criteria for proxy voting on systemic climate risk at climate-critical companies.
“The fiduciary duty we as asset managers have to protect client investments and create value gives us a clear mandate to hold boards of directors in climate critical sectors, such as oil and gas, electric power, automotive and finance, to account for their lack of leadership on climate change and their focus on short-term gains over long-term value creation,” said John Hoeppner, Head of U.S. Stewardship and Sustainable Investing of Legal & General Investment Management America. “With overwhelming evidence pointing to climate change happening even quicker than expected, mainstream investors no longer consider environmental considerations a non-essential bonus, but instead as a fundamental component in determining the health and viability of the corporations in which we invest.”
“Climate change presents serious risks, as well as opportunities, to companies and investors,” said Illinois State Treasurer Michael Frerichs. “For companies to thrive in the face of such a transformative, systemic threat as climate change they must set goals, build plans and marshal the resources necessary to ensure long-term sustainability. When companies fail to demonstrate an adequate response to material risk exposures, shareholders have a fiduciary duty to hold board directors accountable and advocate for better governance. We expect the same level of diligence from our asset managers.”
The complete publication, including footnotes, is available here.
