Financing 1.5°C: Annual General Meetings Season Went Better Than You Think
As spring comes to a close, so does the season of annual general meetings (AGMs). At these convenings, shareholders call for corporate changes by filing and voting on resolutions. In recent years, shareholder engagement has increasingly been used to advocate for climate action, and this year was no exception. Following COP26 in Glasgow and an influx of climate pledges from companies and financial institutions, the momentum to align with a 1.5°C future translated into a record-setting 100+ climate resolutions, leaving no sector behind.
In the financial sector, shareholders brought a slate of groundbreaking proposals to the table that called for an end to the financing of new fossil fuel projects. Although these resolutions fell well short of approval, their impact should not be underestimated.
Setting the Stage
In past AGM seasons, climate resolutions called for corporate greenhouse gas (GHG) emissions disclosures and targets for GHG reductions. In 2020 and 2021, several resolutions at financial institutions were withdrawn, as banks heeded the call for GHG disclosures and targets and reached constructive agreements with shareholder groups. When resolutions did go to a vote, shareholders strongly pushed financial institutions to set and disclose climate goals. For example, at JPMorgan Chase in 2020, 49.6 percent of investors voted for a resolution calling on the bank to report on GHG emissions and financing aligned with the goals of the Paris Agreement. (The bank has since made related commitments.)
As of 2022, the bar for climate action is set, and it demands attention. Investors have clearly signaled that climate transparency, recognition of climate financial risk, and target-setting are now the expectation rather than the exception, and all 30 of the largest North American and European banks had set net-zero targets by the end of 2021.
The Next Phase of Shareholder Engagement in the Financial Sector
Now that many financial institutions have committed to emissions reporting and target setting, how are shareholders holding them accountable for climate action?
Shareholder requests with banks this year notably moved beyond standard transparency and disclosure-focused resolutions to focus more on tangible action and proactive measures. These resolutions — for example, one filed by Trillium Asset Management with Bank of America — requested detailed plans for implementing net-zero goals, including by adopting policies to end the financing of new fossil fuel expansion, in line with the IEA’s Net Zero by 2050 scenario. This oft-cited IEA report outlines a science-based transition to net zero in which funding for new fossil fuel development ends immediately.
The focus on eliminating financial contributions to new fossil fuel development was a novel addition to shareholder resolutions this season, and this shift was not without pushback. Notably, BlackRock claimed that resolutions calling for alignment of lending with a specific transition scenario were overly prescriptive, and many asset management firms refused to vote in favor of these resolutions. As a result, resolutions asking for the end of new fossil fuel investment received vote percentages in the single or low double digits.
While these resolutions garnered less shareholder support than disclosure-focused climate resolutions have received, they were notable for breaking new ground. These specific requests appeared in resolutions for the first time in 2022, and all met the 5 percent threshold required for the resolution to be reconsidered next year. Resolutions often gain traction when filed again in subsequent years, as topics become better understood and more mainstream. Garnering a double-digit vote in year one can already be perceived as a notable impact in the shareholder space and a starting point for dialogue. Additionally, the SEC ruled against arguments requesting the resolutions to be excluded from going to a vote, instead finding that the resolutions were reasonable and did not seek to micromanage.
This year’s resolutions serve as a bellwether for the direction of pressure on banks. Financial institutions have set targets, and now shareholders want to see details of transition plans that are viable and in line with Paris goals. Until this evidence is presented, we can expect that similar resolutions will continue to reappear in future AGM seasons.
Other Notable Votes at 2022 AGMs
| Company | Resolution | Votes in Favor |
|---|---|---|
| Multiple sectors, including financial institutions | Say on Climate (annual shareholder-approved transition plans) | Generally strong votes, ~20 percent of votes in favor for banks in Canada |
| ExxonMobil | Audited report assessing the impact of the IEA Net Zero 2050 Scenario on climate change financial risks | 51 percent of votes |
| Chevron | Report on reliability of methane emissions disclosures | Supported by management, 98 percent of votes |
| Boeing | Report on net-zero transition (as part of the Say on Climate movement) | Supported by management, 91 percent of votes |
| Dominion Energy | Report on risk of natural gas stranded assets | Management neither supported nor opposed, 80 percent of votes |
| Chubb Corp. | Report on plan for disclosing GHG emissions associated with insuring | 72 percent of votes |
| Travelers Companies Inc. | Report on plan for disclosing GHG emissions associated with insuring | 56 percent of votes |
Looking Forward
RMI’s Center for Climate-Aligned Finance predicts that shareholder resolutions in the financial sector and beyond will continue to evolve and focus on climate progress. Beyond setting targets, banks will continue to receive shareholder pressure to articulate how their pledges will be enacted.
The Center has already started to work with banks on how to better understand, articulate, and implement credible transition plans. Our sector-specific programs work to align finance for hard-to-abate sectors with climate goals, while our alignment insights work provides guidance, convenings (including our Alignment Forum), and tools at the firm level (look out for our Net Zero Report of the Future, coming soon). Through these and other initiatives, the Center will continue to support the financial sector to actualize its commitments. 2021 was the year of pledges. 2022 should be the year of transition plans.