Say on climate a "milestone moment" for ASX companies

Four ASX listed companies thus far have committed to putting their climate strategy plans to shareholders to a vote at their 2022 AGMs, the first companies in the world to do so.

The "say on climate" resolutions are advisory votes only, but engagement and governance experts say that advisory resolutions can be a useful tool for assessing shareholder support while allowing for more robust targets and transparency in how companies approach how they will adapt to and mitigate climate change impacts.

However, there are calls for this to become wider practice to allow clearer, more transparent comparisons of targets and how they will be implemented through executive remuneration, future capital expenditure and other issues.

As of publication, the boards of Oil Search, Rio Tinto, Santos and Woodside Energy have all voluntarily agreed to provide shareholders with a non-binding vote on their climate change reports. All four companies are part of the target list of the Climate Action 100+, a global investor coalition that is seeking to engage with the world's most greenhouse gas intensive companies to press for actions to align companies with setting net-zero targets by mid-century in line with the Paris Agreement.

It is expected that other companies will follow.

Non-binding resolutions have been used in other areas and other jurisdictions, such as say on executive remuneration. But this is the first time that companies will put their climate strategies to non-binding votes.

Companies have faced resolutions from activists and civil society organisations calling for greater climate-related disclosure and set targets. The Australasian Centre for Corporate Responsibility (ACCR) have spearheaded a number of those resolutions across the ASX, including Santos, Woodside and Rio Tinto.

A say on climate resolution provides a uniform approach to the issue, said Dan Gocher, director of climate and environment, ACCR.

"Ideally, it's going to bring some consistency with what is being voted on," Gocher said. "At the moment, you have a bit of a haphazard approach of civil society orgs filing resolutions, and quite a lot of variation between the asks, within jurisdictions and across jurisdictions."

Even though the votes are non-binding, it brings a direct line of responsibility for climate risk management, Gocher said.

"When you have this vote, you set out clear expectations, and if the company doesn't meet them, or if shareholders have a substantive vote against a climate vote, it would make sense for those same investors who vote against the plan to vote against a director or directors," Gocher said.

Investors, civil society and other stakeholder have been engaging with companies on their climate risk management and their targets and actions, and some of this information is already in the public domain through reporting based on guidelines like the Task Force on Climate-related Financial Disclosures (TCFD), noted Vas Kolesnikoff, head of Australia and New Zealand research, ISS Australia.

"A say on climate resolution will be a public representation of the board's view as a whole on the company's company strategy," he said. "Most of the big companies have put out TCFD reports out there already, but this will be a shareholder vote on the actual TCFD report, which I think the climate report will include, will be a public statement on what shareholders think."

The decision by these companies to have the first say on climate vote in 2022 gives time for companies to work up strategies, targets and information, although investors will not stop asking questions in the meantime.

BlackRock, the world's largest fund manager, continues to press for disclosure in company engagements, said Iris Davila head of investment stewardship, BlackRock Australia.

"We have been discussing this with companies, to provide us with better transparency and disclosure on their climate plan," said Davila. "We are looking at climate risk it from a fiduciary risk management perspective. We are expecting companies to have a plan to transition their business models to align with the global aspiration of net zero greenhouse gas emissions by 2050, and it comes back to the transparency and disclosure of metrics and targets, and their disclosure going forward."

A say on climate vote has "merit", but Davila noted that it should be uniformly implemented.

"An annual vote does have merit, but the goal is that it should be established across the market. Ideally this would be a regulatory move," Davila said. "It should be uniform across companies. In saying that, we are still encouraging companies, through our engagement efforts, to look at their TCFD reporting and look at SASB as a means of getting the metrics in there and really explain that plan to transition their business models."

Say on climate creates another, more formal mechanism for engagement for investors, said Laura Hillis, director of Climate Action 100+ at the Investor Group on Climate Change (IGCC).

"The say on climate vote allows them to have a formal mechanism by which inventors could respond, ideally annually and ideally allows them to have that say or response to what's going on," Hillis said. "I suspect from what we've seen to date, with Rio Tinto, Santos, and Woodside having taken it up voluntarily, they will put time and energy into thinking through a transition plan they can put to shareholders and get feedback. It's a feedback process for both parties."

The longer lead time also allows for greater engagement, Hillis added.

"I think it creates a milestone moment," Hillis said. "Most of the votes announced for 2022, so there is a period of 12 months where companies can meet with investors, meet with Climate Action 100+ signatories, ask their opinions on what they'd like to see on the transition plan and do the work.'

None of the companies have committed to making say on climate annual votes, although Gocher said it would be effective to do that annually. The announcements by the four companies have also impacted on ACCR's forward planning.

Kolesnikoff predicted that there would be wider uptake of say on climate votes.

"I think going forward, it will go through the market, and eventually all shareholders will say I'm a shareholder of Rio Tinto, and I'm a shareholder in company 300 in the ASX300," he said. "I want to have a say here, and I want to have a say there.

"We're all living with the impacts of climate change , so I think it's an inescapable fact that companies are going to have to start setting and accelerating their targets and producing reports on emissions and their strategies for reducing emissions, and for shareholders to opine on those."

Read more: Rio TintoClimate Action 100+SantosACCRDan GocherIris DavilaLaura HillisWoodside EnergyBlackRock AustraliaISS AustraliaVas KolesnikoffAustralasian Centre for Corporate ResponsibilityInvestor Group on Climate Change