By Colleen Silver, Portfolio Manager, Fiduciary Trust International
SOURCE: Franklin Templeton
DESCRIPTION:
Shareholder advocacy is a powerful tool for investors to align social or environmental values with the companies in which they invest and to make a tangible impact. Portfolio Manager Colleen Silver shares her perspective on how investors can choose to use their holdings as a strategic lever in the fight against climate change.
Climate change has been a topic of interest among a minority of shareholders in public companies for years. But in 2020 things began to change. Compounding natural disasters, combined with the COVID-19 pandemic, heightened the reality of the global risks of climate change to investors. There have been more majority proxy votes in the past two years on the topic of climate change than in the combined 10 years before that.
In 2020, there were more than 90 climate-focused shareholder resolutions. The largest category of resolutions asked companies to set or report on their greenhouse gas (GHG) reduction efforts. Some asked companies to communicate their plans to align operations with the Paris agreement's goal of limiting the global temperature rise to 1.5 degrees Celsius. Other resolutions asked companies to provide short-, medium-, and long-term science-based targets that companies would use to reach net-zero GHG emissions by 2050 or sooner. Others simply asked companies to report how they were reducing GHG emissions.
Of the resolutions that went to shareholder proxy vote in 2020, the two most favorable outcomes were a vote in favor of reporting on supply chain deforestation impacts at a large agribusiness by 99% of shareholders and a vote in favor of reporting on net-zero goals at a multinational conglomerate by 98% of shareholders. The managements of both companies voted in agreement with their shareholder majorities.
Affirmative votes on climate resolutions in 2020 were high even where there was management opposition. More than 80% of shareholders voted in favor of reducing plastics pollution at one of the world’s largest chemicals companies and for adopting GHG emission goals at a multinational energy company. By year-end, 1,541 companies had committed to decarbonizing their activities by midcentury.[1] Moreover, some of the largest institutional shareholders began to support resolutions in favor of addressing the negative effects of climate change. This type of shareholder resolution activity suggests the tipping point for change at the corporate level may be at hand.
Understanding Sshareholder Eengagement
One of the earliest instances of shareholder engagement was the anti-apartheid movement in South Africa. Activist-led boycotts and other protests raised collective social awareness on the issue beginning as early as the 1950’s. In the 1980’s, it was institutional shareholder engagement that succeeded in convincing US companies to change their investment, lending, and purchasing activities in South Africa. Since that time, hundreds of companies have responded to shareholder engagement on a wide range of issues, including climate change, human rights, product safety, gender pay, plastics pollution, board diversity and more.
Why is shareholder engagement effective? It often takes the collective action of multiple stakeholders to make systems change a reality. The Theory of Change for shareholder engagement highlights the impactful role corporate shareholders can play in this network:
Big Companies Matter. Big companies have the scale necessary for solving climate change and other pressing social and environmental issues.
Collective Action Can Influence Companies. Shareholders can collectively engage with companies, influencing the policies and the practices of public corporations with the intent to improve their social and environmental performance.
Educatinge the Shareholder Base Canand Create Public Pressure. Proxy votes can serve to educate other investors and provide public pressure, an effective lever for change.
Looking Ahead
During 2021, most climate-related shareholder resolutions were favorably resolved with management, eliminating the need for a vote. Of the 29 resolutions voted on to date, 13 received majority votes. Growing shareholder and management support for company improvements related to climate change is coinciding with increased attention from regulators.
In March 2021, for example, the SEC created a Climate and ESG Task Force to identify material gaps or misstatements in issuer disclosures of climate risks under existing rules. As the SEC and other global regulatory bodies release updated reporting and disclosure requirements for public companies, we will increasingly see the internalization of the previously external costs of a company’s environmental impacts. The various and growing types of regulation in the climate sphere are expected to add up to greater financial materiality of climate change considerations for all companies.
About Fiduciary Trust International
Fiduciary Trust International, a global wealth management firm headquartered in New York, NY, has served individuals, families, endowments and foundations since 1931. With over $99 billion in assets under management and administration as of September 30, 2021, the firm specializes in strategic wealth planning, investment management and trust and estate services, as well as tax and custody services. The New York-based firm and its subsidiaries maintain offices in Coral Gables, FL, Boca Raton, FL, St. Petersburg, FL, Radnor, PA, Lincoln, MA, Los Angeles, CA, San Mateo, CA, San Francisco, CA, Washington, DC, Wilmington, DE, and Reston, VA. For more information, please visit fiduciarytrust.com, and for the latest updates, follow Fiduciary Trust International on LinkedIn and Twitter: @FiduciaryTrust.
About Franklin Templeton
Franklin Resources, Inc. [NYSE: BEN] is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company brings extensive capabilities in equity, fixed income, multi-asset solutions and alternatives. With offices in more than 30 countries and approximately 1,300 investment professionals, the California-based company has over 70 years of investment experience and over US$1.5 trillion in assets under management as of September 30, 2021. For more information, please visit franklinresources.com.
KEYWORDS: NYSE: BEN, Franklin Templeton, climate change, Fiduciary Trust International
