It will be hard for corporate directors to not take climate change personally this proxy season, as institutional investors and regulators ramp up pressure for them to take meaningful action — or get out of the way.
Investors are armed with a new metric for measuring a company's progress on climate change and a more collaborative approach for holding corporate directors and senior management directly responsible through proxy voting. And they are getting critical backup from regulators like the Securities and Exchange Commission, where climate risk is starting to feature prominently in both corporate reporting and enforcement priorities.
"Investors are really starting to wake up to the systemic nature of these risks. The way to protect their portfolios is to hold boards accountable. You are seeing leading investors adopt proxy voting policies that make (it) abundantly clear that failure to eliminate material contributions to climate change is a thing of the past. That is really the foundation of what we can achieve this year," said Eli Kasargod-Staub, co-founder and executive director of shareholder advocacy organization Majority Action in Washington.
Simiso Nzima, investment director and head of corporate governance for the $449.1 billion California Public Employees' Retirement System, Sacramento, agreed that "for anything to be effective you have to hold someone accountable," and said it is a long-standing CalPERS practice to vote against uncooperative directors on all sorts of ESG issues.
"We take it seriously that when we engage companies and there are not responses, we have no qualms" in voting against directors, he said. "We are excited to hear that other investors are going to have policies that allow them to do that."
CalPERS is a founding member of Climate Action 100+, an organization of more than 500 investor members with a collective $54 trillion in assets that flags key shareholder votes related to three key expectations for companies: that they implement a strong governance framework clearly articulating the board's accountability and oversight of climate change risks and opportunities; that they take action to reduce greenhouse gas emissions across their value chain; and they provide enhanced corporate disclosure that follows the Task Force on Climate-related Financial Disclosure recommendations.
Even better is when companies are able to meet more detailed expectations set by the Global Investor Coalition on Climate Change to help investors assess a company's business plan in a range of climate scenarios, under a five-part framework for climate risk management and disclosure.