From Commitment to Implementation – An Analysis of Corporate Climate Actions

Overview

As the physical and financial impacts of climate change reach new heights, many institutional investors are addressing climate risks and opportunities in their portfolios with renewed urgency. One of the main ways they do this is by engaging with the managers and the boards of the companies they own through dialogues and by filing shareholder proposals when necessary.

Shareholder proposals are beneficial for several key reasons. They allow shareholders to act like an immune system for financial markets and companies, identifying risks and asking companies to address them. Companies frequently respond positively by making commitments to address investor concerns. These commitments often lead to substantial improvements in corporate practices and important real-world, economic impacts.

Most people are familiar with shareholder proposals as they appear as part of voting ballots issued with companies’ annual proxy statements sent in advance of annual meetings. However, before a proposal goes on a ballot, the investor who filed the proposal and the company receiving it frequently meet to discuss it and many proposals are withdrawn by the filer at this stage in return for a commitment from the company. These commitments draw far less attention than votes during proxy season since they are a result of private dialogue. But company action to protect long-term shareholder value is the ultimate goal of the shareholder proposal process. In fact, since 2009, more than a third of the nearly 2,700 climate-related proposals filed with U.S. companies were withdrawn in return for a commitment by the company.

This report answers two essential questions: What happens after companies make commitments? Do they follow through on what they promised with meaningful action? The way we explore this is by examining the implementation of 66 of these commitments made in 2021. By focusing on 2021, the analysis gives companies a reasonable amount of time—three years—to have implemented their commitments. This is adequate time even for commitments such as setting science-based greenhouse gas emissions (GHG) reduction targets, which can involve a year or more of emissions data gathering, and then up to two years for target setting and verification by third parties.

The analysis also sheds light on how companies responded when a majority of shares were voted in favor of a proposal. Although not formally binding, there is widespread acceptance that companies should implement requests made in shareholder proposals that receive majority votes from the company’s investors.

Overall, the report shows that shareholder engagement on climate change continues to lead to actions that benefit investors, companies, and society. Shareholder proposals, along with constructive dialogue, result in a significant number of corporate commitments, and our research reveals that most of those commitments are implemented.

Examples of companies taking action are spotlighted in this report, from oil refiner Phillips 66 to food giant Kraft Heinz, underscoring the underreported story of investors and companies reaching agreements on solutions to help ensure long-term shareholder value. This new analysis also reaffirms the findings of a previous Ceres report on the 2014 and 2015 proxy seasons, which showed similar positive results of companies implementing a high percentage of commitments they made to shareholders.

Consider one example. The New York State Common Retirement Fund, responsible for managing the assets of the New York State and Local Retirement System for the benefit of over 1 million public employees, has been engaging with executives at steel maker Cleveland-Cliffs for several years. In late 2020, New York State Common filed a shareholder proposal encouraging the company, which is the largest flat-rolled steel producer in the nation, to assess whether it could set a more comprehensive goal to reduce its carbon emissions. The company agreed to set a goal to reduce greenhouse gas emissions 25% by 2025, meeting it ahead of schedule. After receiving another shareholder proposal from New York State in late 2023, the company set new goals, including one to achieve “near net-zero” emissions by 2050.

This has important ramifications from investors’ perspective. The company’s new methods for manufacturing clean steel could give it a competitive advantage as demand rises from automakers, construction companies, and consumers increasingly seek low-emissions materials, while also helping to reduce systemic risks to investors from climate change since the steel industry accounts for roughly 8% of global greenhouse gas emissions.

Our analysis comes at an important moment for investors and society. Against the backdrop of a challenging political environment that is complicating intuitional investors’ efforts to address climate risk, we continue to see investments in cost effective climate solutions surge across the economy. As of June 2024, over 5,000 companies globally have set science-based greenhouse gas emissions reduction targets verified by the Science Based Targets initiative.

The report provides several insights. It documents the surprisingly high volume of corporate commitments resulting from shareholder proposals and demonstrates that most of these commitments are indeed implemented by the companies. The findings also serve as an accountability mechanism, highlighting engagements that may require continued attention to reach expected outcomes.

Results

In 2021, Ceres tracked 151 climate-related shareholder proposals filed by investors. Some 70 of these were withdrawn by the filer in return for a commitment from the company, resulting in a 46% commitment rate. This report analyzes the 66 of these commitments where adequate information was available.

An additional 18 proposals received majority votes in 2021, setting a record for climate-related majority votes in one year. (Though that record was matched the very next year.) Majority votes are important because they demonstrate high levels of investor support for addressing a particular business issue. Companies generally implement the requests made in proposals that receive majority support.

The combined commitments and majority votes in the report address several key financially material climate-related topics facing companies, with 34 focused on greenhouse gas reductions and transition plans, 13 on lobbying, 11 on plastics and packaging, seven on financing climate change, seven on deforestation, and 12 on other topics such as methane, governance, and environmental health impacts.

The findings underscore the positive impact that shareholder engagement with businesses has on improving corporate climate action, with the goal of reducing risk and increasing long-term value. Our analysis of the implementation status and implementation quality of these commitments and responses to majority votes finds:

Company Commitments

• Of the 66 corporate commitments tracked in the report, 73% were fully or mostly implemented, 23% were partially implemented, and only 3% did not meet their commitment at all.
• Investors’ quality assessments revealed that 84% of implemented corporate commitments were of High or Medium quality.
• 15 commitments were partially met. Five of these related to plastics and packaging. Three concerned GHG goals of various types. The rest covered a variety of topics.
• Only two commitments out of 66 were assessed as not met.[1]

Majority Votes

• Nearly 90% of the 18 majority votes in 2021 represented proposals from two categories: GHG targets and transition plans (50%) and lobbying disclosure (39%).
• 94% of companies implemented the investor’s ask in some capacity, with 50% fully implemented, 11% mostly implemented, and 33% partially implemented.
• 77% of these implemented majority votes were of High or Medium quality.
• One proposal that received a majority vote was not implemented.

Failure to implement proposals that received majority votes is considered a significant corporate governance concern. The Council of Institutional Investors (CII) has corporate governance policies that “call upon boards to implement majority-supported shareowner proposals,” which represents the broad consensus among investors on the importance of implementing majority votes. CII is an association with members and associate members managing approximately $60 trillion. (Since the proposals studied in the report are all non-binding, companies are not legally obligated to implement those that receive majority support.)

Five of the majority votes only partially implemented or not implemented were for requests for scope 3 GHG emissions reductions efforts at companies that have high scope 3 emissions, including oil and gas companies. While reducing scope 3 emissions (primarily from products sold) is undoubtably challenging for U.S. oil and gas exploration and production companies, examples from other companies globally demonstrate how they could be doing much more to address investor concerns about the risks they are exposed to, such as from stranded assets, during the global transition to clean energy. Investors seek to identify corporate leaders and laggards and want to see robust targets and climate actions plans that will address expected demand for products and services and policy constraints on production.

Food companies Sysco and Bloomin’ Brands also only partially implemented majority votes. For these companies, reducing scope 3 emissions linked to sourcing agricultural ingredients is a difficult puzzle to solve. However, Sysco does now have a goal to “work with suppliers representing 67% of scope 3 emissions to set science-based targets by 2026.” And there are noteworthy examples of food companies that are leading in this regard. General Mills has 500,000 acres enrolled in regenerative agriculture programs, with a 2030 goal of 1 million acres. And 49% of Mars’ scope 3 emissions are now covered by suppliers that have already set a SBTi target or are participating in Mars’ Supplier Leadership on Climate Transition program. More details on these companies’ transition plans can be found in General Mills’ Climate Transition Action Plan and Mars Inc.’s Net Zero Roadmap.

The overall takeaway on majority vote implementation from our analysis is clear. Most companies implement majority votes and understand that investors continue to expect that they do so. And investors continue to want to work with companies in even the most challenging sectors to help them prepare for the inevitable low-carbon future.

Link to full report can be found here. 

1One of the unmet commitments involved Bank of America saying it would end financing of fossil fuel development in the Arctic. While the bank did originally publish documentation on this commitment, this is no longer publicly available, and the bank now applies “enhanced due diligence” rather than “restrictions” to this financing. The second commitment that was not met was made in response to a proposal asking Darden Restaurants to report on efforts to eliminate deforestation from its supply chain. While we were not able to gather additional details, the filer reports that discussions with the company are ongoing. In addition, Darden does at least indicate on its website that it is assessing and working on deforestation.(go back)