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Although calls for companies to commit to tackling climate change is emerging as one of the hottest topics in the corporate governance arena, recent developments have highlighted that while executives are encouraged to be more proactive in their approach, the issue is finely balanced against economic considerations.
The Investor Forum, an influential group which helps investors to work collectively to escalate material issues with the Boards of UK-listed companies and whose members include JP Morgan, Schroder and HSBC, is putting pressure on the government to introduce a mandatory, non-binding ‘say on climate’ vote at annual general meetings (AGMs). The campaign is dedicated to encouraging companies to transition to net zero through Shareholder Voting on Climate Transition Action Plans. This advocates for annual disclosure of emission, a plan to manage those emissions and an AGM vote on this plan.
ShareAction, a charity which promotes responsible investment, has been working with FTSE 100 banks, including HSBC and Barclays to create resolutions in an attempt to phase out the financing of fossil fuel companies. Barclays was one of a few companies to put forward two resolutions on climate change at its 2020 AGM. Barclays' commitment to tackling climate change which received 99.93 % of votes was a resolution which set an ambition for the bank to be net zero by 2050 and commit to a strategy with targets and report annually on progress as well as for alignment of its entire financing portfolio to the goals of the Paris Agreement. The ShareAction's climate change resolution which received 23.9% of votes, was not supported by the board due to its binding nature. The resolution required Barclays to set and disclose targets to phase out the provision of financial services, including project finance, corporate finance, and underwriting, to the energy sector.
Despite ShareAction’s lack of popularity at Barclays’ AGM, the charity still pursued HSBC and announced last week that together HSBC and ShareAction are currently filing a climate change related shareholder resolution. This is to ensure that the bank addresses its investment into the fossil fuel industry with targets and reporting, much like the resolution ShareAction put forward at Barclays. Prior to this, Europe’s second-biggest finance provider for the fossil fuel industry, HSBC set out the company’s ambition to ‘reduce financed emissions from [its] portfolio of customers to net zero by 2050 or sooner’. However, ShareAction is determined to achieve more and asked that HSBC announce its actual plans to reduce its involvement with the fossil fuel industry, which according to ShareAction analysis on HSBC’s net zero ambition ‘…must be backed by credible short- and medium- decarbonisation targets’.
A number of companies have been proactive in their approach. At the end of last year, FTSE 100 company Unilever pledged to give shareholders a recurrent say on its efforts to address global warming, announcing ambitious plans to cut all emissions from its operations and those of its suppliers by 2039. In its 2020 annual report, Unilever also set out strategies aimed at tackling supply chain issues, and reducing its carbon footprint and plastic packaging, as well as sustainable sourcing. A particularly interesting initiative is how the Management Co-investment Plan (MCIP), a long-term incentive plan, is calculated based on financials and Unilever Sustainable Living Plan performance (the company’s commitment to social and environmental sustainability) and forms part of the Compensation Committee’s overall recommendation on MCIP. Factors that the Compensation Committee consider include brand preference, climate change, supply chain, ethics and Unilever’s wider progress on sustainability.
The competing interests of economic returns and environmental considerations will be a key concern for many companies. This battle was illustrated on 19 January 2021, when Royal Dutch Shell plc pulled out of a collaborative project with British Airways and Velocys to build a sustainable jet fuels plant in the UK, which would turn household and commercial solid waste into clean burning sustainable aviation fuel. Dubbed as one of the top companies set to ‘turbocharge government plans’ for sustainable aviation fuels as a key player in Jet Zero plan to decarbonise flights, Shell has quickly diminished the landscape with its withdrawal from the project, and throws into question Boris Johnson’s claim that Britain could deliver the world’s first zero-emission long-haul flight.
Furthermore, the announcement by the FTSE 100 company, which has set out its response to climate change by promising to ‘become a net-zero emissions energy business by 2050 or sooner,’ contradicts the stance taken in its 2020 annual report. In particular, it contrasts with the statement that Shell is ‘actively seeking to increase [its] investments in renewable power’ and the declaration by its Chair, Chad Holliday, that the company aims to reduce its Net Carbon Footprint including ‘not only our direct and indirect carbon emissions, associated with producing the energy products which we sell, but also our customers’ emissions from their use of the energy products that we sell, by around 20% in 2035 and by around 50% in 2050.’
With climate change high on the agenda, the upcoming AGM season represents a significant opportunity for shareholders to add pressure and influence companies’ decisions on green investments and greener operations. Market Tracker will continue to report on developments in this area over the coming months.
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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