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Responsible investment in the Spring: Climate protection is on the agenda

Blog - Brenda Plant

RRSP season is over, so you may be thinking less about investment, but Spring is a busy time for many responsible investing fund companies. It is the time when a lot of corporate annual general meetings happen, which means it is a time that investors are able to vote on a certain number of issues related to the company management (in publicly traded companies).

These proposals generally call for reports or policy changes on key issues that can impact a company’s bottom line, often related to reputational risks. Company management, in nearly all cases, voice opposition to these proposals. Nonetheless, these proposals have been steadily gaining greater support among large, mainstream institutional investors. Proposals of social and environmental nature often serve a “canary in the coal mine” role, as they historically have identified many areas of financial risks—including climate change and the sub-prime mortgage crisis—years before companies begin to address (or in some cases, even acknowledge) these issues.

Climate change is the leading environmental issue that companies are being called to task on, and this has been the case for a number of years running. What this means concretely is that a number of responsible investor groups submitted shareholder proposals on this issue to companies in their portfolio, and the companies must send these proposals out to all their investors for a vote before their annual general meeting.

These proposals have generally been developed out of an understanding that, in the long term, businesses need to be environmentally responsible, treat employees, suppliers, and customers well, and be responsive to the interests of the communities in which they operate. There is a further understanding that being responsible on environmental issues does not simply mean respecting the minimum requirements for environmental or social performance set by law!

How does it happen?

Publicly traded companies’ send out a notice to their shareholders advising them of the upcoming annual general meeting and asking them to vote on a certain number of issues, company management also give their advice on how they think shareholders should vote. (see sample proxy voting instructions form). On climate related proposals (or on any other resolution proposed by minority shareholders), in a large majority of cases, management recommends that shareholders vote against the proposal and present their reasons for this in additional documentation.

For many responsible investment funds in Canada, the goal is to dialogue with companies and get an acceptable resolution with the company and then withdraw a submitted proposal before it goes to vote, or avoid having to submit a resolution altogether. There are many more shareholder resolutions on climate change related issues submitted in the U.S. by American-based NGOs and responsible investors, but Canadian fund companies often hold American companies in their portfolios, so they still have the responsibility and opportunity to exercise their vote on these issues.

The Proxy Preview 2015, produced by the As You Sow Foundation in collaboration with Sustainable Investment Institute and Proxy Impact, reports that 76 resolutions about carbon accounting, energy production and related risk management disclosures have been filed so far this year in the U.S. :

“In addition to continued demands for disclosing greenhouse gas emissions and setting targets to cut these emissions, investors want to hear more from companies about measuring and managing methane releases from expanded U.S. domestic oil and gas operations.

Proponents also want companies to share information about how they will handle a future where demand for fossil fuel may be lower, and how they justify the high capital expenditures needed for unconventional fossil fuel extraction.

These investors contend more robust action is needed from companies and that carbon assets are likely to become stranded as climate-related laws and regulations tighten and more storms and higher ocean levels challenge long global supply chains.“

To read the full report that discusses the 433 resolutions that have been filled with US companies so far this year on social and environmental issues, download the full report from this link.

What can you do?

There are a number of climate change related voting opportunities still to come, so if you hold shares in US companies through a mutual fund, you might want to ask the fund company how it is voting or has voted so far on climate-related proposals. If you directly hold shares in any of these companies, make sure that you are voting at any opportunity you have!

To better understand shareholder votes go to Proxy Voting Examples on this page of Ethiquette.