ESTea #12 19/07/21
When I say 'Climate', you say 'yes'
The Children’s Say on Climate
So-called ‘Say on Climate’ votes are quickly becoming an important element of company AGMs across the world.
These resolutions, sometimes accepted voluntarily, sometimes proposed by the company itself and sometimes forced by investors - require that the company disclosure their emissions, plan to reduce them and then report on the progress of that plan. All three stages must be ratified by shareholders - this is their ‘say’ on climate.
The idea of a ‘Say on Climate’ (SoC) comes from Christopher Hohn (pictured above) and his company named The Children’s Investment (TCI) Fund Management: one of the UK’s most successful and prolific hedge funds.
The first SoC was promoted by TCI as they worked with Aena, a Spanish airports company, in 2020. In March of 2021, Aena’s Board of Directors signed off their Climate Action Plan for 2021-2030 and, for example, included a requirement to reduce 94% of their emissions per passenger by 2030.
As of June 2021, Squarewell notes 32 companies which plan to submit or have submitted SoC proposals either using their own holdings or on behalf of others. Currently, 23 companies have already adopted SoC measures either out of choice, or because they were forced to.
SoC it to ‘em
There is reasonable concern in the market that SoC votes are not something that will be universally good for the environment. TCI has the time, money and drive to maximise the benefit of a successful Say on Climate, while others may not.
Specifically, TCI and their allies can ensure that the emissions reporting is robust, the plan is sensible and scientifically-validated, and these investors are able to hold the company to account to ensure that the plan is then implemented. Importantly, they push to ensure that the plan is sufficiently ambitious.
For example, in TCI’s recent letter to Aena they asked for specific changes and improvements to the action plan. These wide ranging requests where both specific and general, and they were well researched and firmly stated.
The suggestions covering items such as yearly targets, self generation of electricity, take-off and landing emissions, low carbon fuels, electrification of airport vehicles and ESG related management incentives. This ain’t your daddy’s decarbonisation plan.
A ‘May’ on climate
However, for companies beginning their own ‘Say on Climate’ initiatives, without the zeal of TCI or similar investors, there is a real risk these initiatives will become one of the principle tools for greenwashing.
SoCs have both features necessary to be used for greenwashing - a ‘Say on Climate’ both sound like a big deal and can be very vague.
Clearly a ‘say on climate’ is exactly the type of phrase you can already imagine on the website of any company trying to bolster their environmental image. I personally think that a ‘say on climate’ will be a major trend for both retail-facing and non-retail companies in the coming year - it combines both the feel good of environmentalism with the general western ethos of ‘having your say’. The adverts almost write themselves.
And, a ‘Say on Climate’ plan can be just as vague as you want it to be. I plan to clean the sink most weekends yet somehow I never quite reach my plan.
A Say on Climate will also be useful for companies looking to shift blame away from themselves and onto ‘big, bad’ investors. Management can pass a SoC, produce a plan and then simply state that they’re only following the plan - instead of taking personal responsibility for the emissions and impact of the company.
Put simply, SoC proposals are a new tool in the arsenal of sustainable investors, but will almost certainly become a problem not a solution - especially without regulatory intervention to set standards.
Well-intentioned and used for good by TCI, I expect them to morph into cumbersome yet ineffective documents that do little to pressure companies to behave better.
The only way they will become effective is, perhaps, through a new generation of environmental investors who take seriously their responsibility to hold management to account. New FCA guidelines in the UK are beginning to make this a specific responsibility of self-styled ‘ESG’ funds, and this growth could possible save the SoC.