As this year’s proxy season starts, climate change remains high on the agenda, according to Morningstar.

As the global temperature rises, so does investor scrutiny. Meanwhile, scientists continue to warn that time is running out to reduce greenhouse gas (GHG) emissions. Investors see a warming planet as a major investment risk, so they are demanding better disclosure on what the risks are and how companies are taking action to mitigate them, Morningstar said.

According to Morningstar, there has been a rapid increase in the number of resolutions as a result on climate at shareholder meetings. In 2021 there were 31 resolutions. In 2022, the number more than doubled to 77.

The majority of shareholder resolutions globally are filed in the US and climate resolutions are no exception.

Morningstar proxy global climate bar chart

Shareholder resolutions are key to helping investors access the information they need to assess climate risk in their portfolios, the firm stated, adding that investors selecting funds can also analyse asset managers’ voting decisions on climate matters to determine which managers’ sustainability stance is best aligned with their own.

Management have filed 62 ‘say-on-climate’ resolutions over the last two years, 42 of which were voted on in 2022. These resolutions are filed by management and request shareholder approval of companies’ climate strategy and reporting.

To date on two US companies – Moody’s MCO and S&P Global SPGI – have submitted their climate plans to shareholder vote, with the majority being filed outside of the US.

UK-based Pensions & Investment Research Consultants Ltd (PIRC) announced this morning iit would oppose the BP chair and annual report on climate grounds. PIRC is one of many asset owners that have expressed such opposition over the past few days.

Brunel Pension Partnership and NEST also said they would vote against BP’s chair being reappointed and the company’s report and accounts for failing to address climate risks by setting adequate targets.

Additionally, a couple of weeks ago a group of 17 mostly Dutch and French institutional investors filed a resolution for the annual general meeting of TotalEnergies, requesting the French energy firm to align its Scope 3 emissions with the Paris Agreement by 2030.

While growth in the volume of proposals grew, support for management resolutions and shareholder resolutions on climate fell in 2022. Average support for shareholder resolutions on climate fell to 24% in 2022 from 46% in 2021.  

Morningstar proxy global climate support bar chart

In 2022, many more shareholder proposals requested specific management actions of a strategic nature, including requests to quickly cease investment or financing for new fossil fuel assets. Many asset managers felt them to be unduly prescriptive and not in the interest of company shareholders.

There is diverging investor opinion on the definition of ‘good’. Asset managers have different ideas of what ‘good’ looks like and when it comes to action and disclosure on climate change, so clear communications has become more important than ever.

Morningstar said that a manager may decide to support a company’s climate plan event if they believe significant improvements are needed, with the view that a barely adequate plan is better than nothing.

“As we head into the 2023 proxy season, pending resolutions at Exxon Mobil XOM and Marathon Petroleum MPC see more granular information on costs borne by energy companies when they retire fossil fuel assets at the end of their useful lives,” Morningstar said.

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