7th April 2022
Shareholders who have financially invested in a company have an interest in the success of that company – and they have powers to take action when their interests are at risk. These powers are increasingly being used to compel companies to take stronger action to better address the risks climate change poses to their business, and minimise the harm they cause to people and the planet.
Investors can take action in several ways. In recent years, there has been a tide of action via shareholder resolutions. This is where a shareholder can submit a proposal for a vote at a company’s annual general meeting, for example, calling on the company to put in place stronger climate targets.
Also emerging is action via shareholder litigation. ClientEarth recently started a world-first shareholder claim against the Board of Directors of Shell for failing to adequately prepare for the net zero transition. Directors owe what are called “fiduciary duties” to act in their company’s best interests. Shareholders can take action to protect the company when directors may not be fulfilling this duty.
Here are five examples of shareholder actions that led the way in compelling management to improve the way the companies they are invested in are run.
Engine No1, a small hedge fund investor, garnered support for a shareholder vote to install three new directors on ExxonMobil’s board at last year’s AGM, arguing that a strong climate strategy makes good business sense. The investment fund, which has just a 0.02% stake in the company, managed to rally support to oust three sitting board members in favour of three other candidates, with view to improving the company’s consideration of climate risk.
ClientEarth brought a world-first shareholder legal challenge against Polish energy company Enea for pushing ahead with the controversial Ostrołęka C coal power plant, despite widespread concern about potential financial risks related to climate change.
It was the first time a company had to defend itself in court over a failure to manage material climate-related financial risk when making a major investment decision. Our win in court led Enea to suspend funding to, and construction of Ostroleka C, over economic concerns. Large institutional investors including Legal and General Investment Management supported the claim.
While our case was happening, key players in the Polish energy industry, including Tauron and PGE, set their sights on alternative and cheaper avenues of producing energy – like wind power.
In May 2021 shareholders of the US’ second largest oil company Chevron voted 61% in favour of a resolution calling for cuts in the company’s scope 3 emissions. This resolution calls for the company to disclose and reduce the emissions from their supply chains and the products they sell, not only those which it directly or indirectly consumes. The action was arranged by green shareholder group Follow This, and it was the third similarly successful ballot of this kind.
At their 2020 AGM shareholders voted with activist investor and founder of The Children’s Investment (TCI) Fund Chris Hohn in favour of an action plan on climate change. The plan aims to see the airports in Aena’s network which include Palma de Mallorca and Madrid Barajas be energy self-sufficient and carbon neutral by 2026 in order to meet Paris Agreement targets. TCI, one of Aena’s largest independent shareholders, also helped to secure a world-first annual vote for shareholders on the company’s climate plans. Aena’s chief executive Maurici Lucena Betriu indicated that he believed there would be no trade-off between climate protection and overall profitability.
ClientEarth supported action against HSBC, Europe’s second largest fossil fuels financier. Campaign group ShareAction put pressure on HSBC together with 117 individuals and 15 institutions by filing a shareholder resolution in early 2021 asking the bank to publish a strategy and targets to reduce its exposure to fossil fuel assets, starting with action on coal. ClientEarth wrote to members of HSBC’s board supporting demands laid out in ShareAction’s resolution. This led to a commitment by the bank to end coal financing in the EU and OECD by 2030, and worldwide by 2040. HSBC acknowledged publicly that meeting the goals of the Paris agreement and the expansion of coal-fired power were not aligned.
These types of actions are on the rise. Sixteen climate-related shareholder resolutions were tabled in 2021 in the UK, compared with just five the year before.
We have now taken the first step in our own shareholder action against the Board of Directors of Shell, seeking to hold them personally liable for mismanaging climate change risk. This is the first ever case of its kind. We’re arguing that the Board’s failure to properly prepare Shell for the net-zero transition means that they are breaching their legal duties. The Board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement goal to keep global temperature rises to below 1.5C by 2050.