Articles | July 6, 2021
Environmental issues are more prominent in the 2021 proxy season than in years past, which matches an uptick in environmental focus seen in regulatory action and voluntary commitments coming from the private sector. Exxon Mobil’s board of director election was upset by an activist investor whose dissident directors with environmental expertise beat out management nominees. Segal Marco supported two of the three dissident candidates that were seated to the board. Our perspective is that Exxon was in need of change given the board lacked independence, environmental expertise and had shown weak relative financial performance.
In January the incoming Biden Administration took a hard pivot away from the previous administration’s stance in favor of meeting the Paris Agreement goals of limiting global greenhouse gas emissions to an increase of 1.5 degrees. The Securities and Exchange Commission (SEC) announced on March 15 that it is seeking public input from investors, registrants and other market participants on climate change disclosure. On May 20, President Biden issued an Executive Order on Climate-Related Financial Risk that directs the Secretaries of Labor and Treasury, among others, to develop strategies to meet a net-zero emissions economy by 2050.
A cascade of companies and countries are announcing net zero emissions targets by 2030 and 2050. Fifty-three percent of the global economy has set or is intending to set net zero targets by 2050, representing $46 trillion in aggregate GDP of the committing countries, states and cities, according to the Energy & Climate Intelligence Unit. The same group reports as of March 2021 that one-fifth of the world’s 2000 largest companies have committed to a net zero target, including Shell and BP.
Commitments, of course, are not deliverables. A closer look at the details reveals a long road ahead before the United States can reliably count corporate emissions, much less track and report on reductions.
Still, cleaner energy is now a major priority worldwide, and many investors are taking actions to urge companies to develop plans to reduce emissions and track progress publicly. The concerns are made stark when assessing the financial toll of climate change. The National Centers for Environmental Information under the National Oceanic and Atmospheric Administration reports that in 1980 the United States had three major weather events whose costs met or exceeded a billion dollars. Fast forward to 2020 with a staggering 22 one-billion-dollar or more events.
Climate Majority Project is an initiative led by Majority Action, a non-profit working on shareholder advocacy. The Project provides detailed proxy research on climate action by major emitters to inform investors that seek to unseat corporate directors where progress is too slow and/or reporting lacks transparency. In May, the state treasurers of Connecticut, Illinois and Vermont announced votes against Duke Energy directors for corporate governance failures related to climate change.
Meanwhile, new in 2021 are proposals centered on shareholder approval of climate change plans. To date, 24 companies have put forth climate change plans for shareholder approval. Segal Marco’s view is climate transition strategies are challenging to parse and not all shareholders have the expertise to evaluate the robustness of the plan. We are in favor of companies reporting on their plans and detailing publicly their progress towards stated commitments.
The challenge with voting on management’s climate change plans, however, is that while we support disclosure, we have found it to be lacking on how it will impact many of the plan participants for whom we vote proxies. A glaring blind spot among the 24 companies that put forward climate change plans is that none have disclosed the impact on the work force. Segal Marco supports the concept of a “Just Transition,” which is a framework developed by trade unions to secure workers’ rights and through which livelihoods are part of the consideration in combating climate change. The Paris Agreement calls for its signatories to take into account “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs.”
Climate Action 100+ is an investor-led initiative tracking action on climate change of the world’s 100+ largest greenhouse gas emitters. Its 10-point evaluation framework includes a review of Just Transition. Likewise, other thought leaders also highlight the necessity of keeping workers at the table. In December 2020, the five organizations with a market reputation for leading the development on how to standardize corporate reporting on climate released a prototype climate-related financial disclosure standard. The five groups are: Carbon Disclosure Project (CDP); Climate Disclosure Standards Board (CDSB); Global Reporting Initiative (GRI); International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). The prototype is also inclusive of the Task Force on Climate-related Financial Disclosure’s (TCFD) 11 recommendations for climate reporting as issued in 2017. The group reports: “Achieving the Paris Agreement will necessitate profound changes in the business models of most industries and the just transition to a resilient and equitable net-zero carbon economy by 2050.”
Without the support of workers, who are almost always shareholders as well, companies’ plans relating to this profoundly important topic may still come up short.
Segal Marco Advisors provides consulting advice on asset allocation, investment strategy, manager searches, performance measurement and related issues. The information and opinions herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Segal Marco Advisors’ R2 Blog and the data and analysis herein is intended for general education only and not as investment advice. It is not intended for use as a basis for investment decisions, nor should it be construed as advice designed to meet the needs of any particular investor. Please contact Segal Marco Advisors or another qualified investment professional for advice regarding the evaluation of any specific information, opinion, advice, or other content. Of course, on all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.
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