Vanguard cautions companies against ‘say on climate’ votes
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The lack of standardization surrounding “say on climate” votes means that proposals of this kind continue to cause “confusion” among investors, according to Vanguard’s latest whitepaper.
The $7.2 trillion fund manager revealed that it “does not proactively encourage companies to hold a ‘say on climate’ vote, given the lack of established standards or widely accepted market norms that govern these votes.”
The lack of a standardized method by which to hold a vote on a company’s climate transition plan leaves many investors “confused,” Vanguard said, with some companies mirroring the framework of annual “say on pay” proposals while others opt to hold votes on their climate transition plans less frequently.
The fund manager is also “concerned” that high levels of support for proposals of this kind may “mask” some of the disclosure and risk management gaps that have been identified in climate transition plans.
Vanguard also revealed that it suspects some companies could be using the vote in “opportunistic ways” to demonstrate that they have shareholder support for plans that are “incomplete or remain static.”
When a company chooses to hold a “say on climate” vote, Vanguard expects the board to provide clear disclosure of the rationale of the vote, articulate the oversight mechanisms and implications of the vote, and produce “robust reporting” in line with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Vanguard “may challenge the board” on the relevance of providing investors with a “say on climate” vote where climate-related risks are comparatively low.
For companies facing material climate risks, Vanguard will assess plans based on board-level oversight and accountability, whether the company’s approach to climate is well-articulated, if its emission-reduction targets are aligned with Paris Agreement goals, and the quality of disclosure.
So far this year, “say on climate” votes have continued to win majority support from investors, despite plans at companies such as Woodside Petroleum, Credit Suisse, and Barclays facing pushback for failing to meet Paris Agreement goals.
Despite this, support for plans of this kind has decreased this year compared to the previous year. The 20 management “say on climate” plans subject to a vote globally so far this year have won an average of 89.6% support, compared to 95.9% support throughout 2021.