11 May 2023
Author: Iancu Daramus
As the proxy season continues, we aim to hold companies accountable for their performance on key sustainability and governance issues. We provide an update on some of our recent votes and engagements during 2023.
Targeting lack of targets
As discussed in a previous blog, this year has seen the introduction of strengthened voting expectations – for example, companies with no emissions targets are likely to receive a vote against. With c. 90% of the world’s greenhouse emissions now covered by net zero targets (and c. 25% covered by carbon pricing), we believe the lack of targets may signal the oversight of a source of material risk and will likely oppose the board director responsible for the sustainability committee (or, in some cases, the chair or other directors) – this includes votes at DH Horton (the US’ largest homebuilder) and major infrastructure company Kinder Morgan.
Conversely, where targets exist, we believe linking them to executive pay provides investors with a signal of the potential importance of such targets; we have cast an increasing number of votes against pay packages that we believe are misaligned with long-term value creation and the management of material risks.
Similarly, for investors to be able to appraise the progress made by companies (and the strength of their targets), adequate and transparent disclosures are essential. Alongside dozens of other investors, we have continued to support a campaign calling on companies to report their emissions via CDP, a platform that drives much of the climate data infrastructure in the market. Building on this campaign, we have begun in 2023 to vote against companies that fall short of our disclosure expectations¹.
Financing in the spotlight
Transparency remains in the spotlight during the proxy season, as a majority of investors (including Fulcrum) supported shareholder proposals calling on major bank Wells Fargo to report on the congruency between official company positions and the lobbying conducted (e.g. via third-party associations). We added our votes to the circa 30% of shareholders asking Bank of America and Wells to issue a report on their climate transition plan, providing investors with more details on their strategy to meet their sustainability financing targets.
On this topic, we were very pleased to see financial giant BNP Paribas respond to our joint investor letter (co-ordinated by NGO ShareAction) by pledging to halt new financing for oil and gas projects – our main engagement request; with a follow up meeting.
High-carbon companies remain a priority for our engagements, in particular those extractive companies that we believed are positioned to make a meaningful impact on the transition. We pre-announced our support for a shareholder proposal calling for clarity on the climate alignment of mining powerhouse Glencore’s coal assets, noting our belief in the upside share price potential from a cleaner portfolio. We look forward to discussing this with the company in an upcoming meeting to discuss the bank’s revised approach.
As co-leads in the Climate Action 100+ investor coalition, we have continued our engagements with BP, including multiple meetings with the company and board members. Whilst we have expressed publicly some reservations around the governance of the company’s revised emissions targets, we believe the company’s plans remain broadly compatible with the goals of the Paris Agreement². We have therefore opposed a shareholder proposal on this issue. Given that the company has pledged to reduce its own oil and gas production, we do not believe investors unilaterally forcing further targets on the amount of third-party products sold in BP’s petrol stations, for example, is appropriate at this stage. That said, we will continue to engage with the company around the speed and scale of its low-carbon investments, and the lifecycle and payback profile of its oil and gas production.
As the above examples illustrate, scrutiny of both asset managers’ and companies’ sustainability performance is increasing; so is the need for transparency and nuance, as not everything that is sustainability-related is also supportive of shareholder (or even stakeholder value). We invite our clients and interested parties to review our voting records – alongside rationales for contentious votes – which are publicly available here: https://viewpoint.glasslewis.com/WD/?siteId=Fulcrum.