KEY VOTES TO WATCH IN 2020 PROXY SEASON

The “Big Three” asset managers — BlackRock, Vanguard, and State Street — collectively vote about 25% of shares at S&P 500 companies, giving them outsized power and responsibility to hold corporate boards accountable on climate change and other critical issues.  After considerable pressure from clients and advocates, BlackRock committed this January to put climate change at the center of BlackRock’s investment strategy, and has reemphasized that BlackRock will hold directors accountable for climate action during the COVID-19 pandemic. State Street made similar voting commitments in January. BlackRock further committed to publish vote bulletins when key climate votes are taken, explaining the asset manager’s vote decision.

These new commitments will be put to the test on a range of shareholder votes this season, both on shareholder resolutions and director elections. To the right are the key shareholder votes this season that have the greatest potential to shape corporate climate action and protect long-term shareholder value — these are the critical votes to watch to see if top asset managers will hold corporate boards accountable.

Four key sectors will be important to watch in the 2020 proxy season

The electric power, finance, transportation, and oil and gas sectors must all make dramatic transformations to curb the worst of catastrophic climate change and protect long-term investors. Successful votes at these companies could help realign investment plans to the goals of the Paris Agreement, shed light on dark money used to influence critical climate policies, and hold boards accountable for failure to respond adequately to the climate crisis. And just as in prior years, whether many of these votes receive majority support may well come down to the voting decisions of these largest asset managers. Last year the “Big Three” asset managers—BlackRock, Vanguard, and State Street—used their voting power to back 99% of oil and gas and electric power company directors across the S&P 500.

WHY DO THESE SECTORS AND CATEGORIES MATTER?

+ ELECTRIC POWER

The electric power sector is responsible for 33 percent of U.S. energy-related CO2 emissions according to the U.S. Energy Information Administration (EIA), second only to transportation in its contribution to carbon emissions in the U.S. Decarbonization of the power sector is the lynchpin of achieving net-zero emissions economy-wide, as it is critical to enabling other sectors, such as transportation, to decarbonize through carbon-free electrification. Unfortunately, many top U.S. electric utilities are not on track to achieve decarbonization. This exposes shareholders to significant risks and at the same time fails to take advantage of the unprecedented growth opportunities that electrification of other parts of the economy would bring.

This year, shareholders will be voting on shareholder resolutions at some of the largest power producers and carbon emitters, including the country’s largest investor-owned electric utility Duke Energy, as well as The Southern Company, Dominion Energy, and Ameren Corporation. Independent, climate-competent, and robust board oversight is needed to ensure that these four companies redesign their planned capital expenditures to align to net-zero pathways. Duke Energy and Southern Company also face policy influence disclosure resolutions, a critical reform for two companies noted by InfluenceMap for their extensive and negative climate policy influence.

+ FINANCE

Global financial regulators are sounding the alarm about the systemic risks from climate change to global financial stability. COVID-19, and the economic effects of our efforts to contain it, provides a preview of the catastrophic systemic risks posed by climate change. As a result, it is essential that major banks align their financing strategies, risk management, and policy influence to the goal of achieving net-zero emissions by 2050.

While certain banks, such as Barclay’s, Lloyd’s, and RBS have set targets to eliminate or significantly reduce their financed emissions, many of the world’s largest financial institutions are continuing to finance the expansion of fossil fuel resources. Consuming these new resources could blow through our carbon budget and imperil our chances of achieving the goals of the Paris Agreement; even if they are not consumed, these fossil investments would exacerbate already massive stranded asset risks. Either way, financing fossil fuel expansion exposes banks to systemic risks, with predictions that escalating climate change could wreak havoc on financial markets.

Critical shareholder votes will be held at JPMorgan Chase, Barclays, and Mizuho Bank — three banks that are among the top 10 largest financiers of fossil fuels. JP Morgan is the largest fossil fuel financier in the world, and its board of directors is led by former ExxonMobil CEO Lee Raymond, architect of that company’s notorious climate denial strategy. Votes to oppose his re-election as director, establish an independent chair, and call on the company to report on a range of climate-related issues will be critical.

At Barclays, the largest European fossil fuel financier, two resolutions will be put to shareholders regarding the bank’s climate plans. One, proposed by shareholders, asks the company to set firm targets to phase out the provision of financial services in ways misaligned with the Paris Agreement goals. The other, a counterproposal from the company itself, instead requires only that Barclays set an ambition to be a net zero bank by 2050, falling short of the change shareholders called for in the original proposal. Proponents of the shareholder resolution are advocating shareholder support for both proposals.

Shareholders at Mizuho Financial Group are calling on the company to disclose a plan outlining its strategy to align its investments with the climate goals of the Paris Agreement. Mizuho has been the top lender to companies developing new coal power plants in recent years, and despite recent commitments to phase out certain financing for new coal projects, resolution proponents rightly seek more fundamental realignment and a more rapid and comprehensive phase out of coal support.

+ TRANSPORTATION

The transportation sector is responsible for 36 percent of U.S. energy-related CO2 emissions, and is the largest source of greenhouse gas emissions in the U.S. Transportation overtook electric power generation in 2016, and its contributions to CO2 emissions have only increased since then. Companies facing critical votes to require lobbying disclosures in the transportation sector include major aviation companies, such as Delta and United Airlines, and the largest U.S. automotive manufacturers Ford and General Motors. In the face of the COVID-19 crisis, airlines including Delta and United have lobbied for massive bailouts, making lobbying disclosures all the more central to shareholders’ understanding of company strategy and performance. At the same time, under the cover of the crisis, corporate fuel economy standards have been gutted, raising questions about the potential misalignment of the lobbying activities of major automakers.

+ OIL AND GAS

As coal has declined as a fuel source for electricity generation, gas has become an increasingly important source of emissions from electricity generation and remains so for transportation. In 2019, natural gas and petroleum products accounted for 79 percent of energy-related emissions by source in the U.S. Despite billions in planned capital expenditures to support new exploration and production, oil supplies currently in production (pre-COVID) already exceed the carbon budget for limiting warming to 1.5°C without carbon capture and sequestration technology to eliminate their emissions. It is critical that oil and gas companies move quickly to realign their development and capital expenditure expectations to avoid a climate catastrophe.

Shareholders will face a number of critical votes at ExxonMobil in 2020. ExxonMobil is the largest U.S. oil and gas major, and lags behind many of its international competitors such as BP and Shell. Not only has ExxonMobil refused to make any commitment to aligning its core business to the goals of the Paris Agreement, it has derided such commitments as nothing more than a “beauty competition.”

Shareholders at oil company Total, claiming the first climate resolution ever filed in France, are calling on the company to articulate a roadmap aligning its strategy with the goals of the Paris Agreement. Meanwhile at Chevron, shareholders are seeking to establish an independent chair and require full disclosure of lobbying activities by the company.

+ VOTES AGAINST DIRECTORS

Particularly in times of business model transformation, regular refreshment of the board can be important to ensure that the current balance of director experiences and abilities matches the company’s needs. In the face of the failure of boards and managements to respond adequately to climate change, shareholders have the power and responsibility to demand that companies replace incumbent directors with those willing and able to address the climate crisis. Without climate-competent leadership, companies will not undertake the comprehensive transformation needed to ensure that we achieve net-zero carbon emissions by 2050 at the latest to limit global warming to well below 2ºC and mitigate the escalating, systemic risks that climate change poses to shareholders and the global financial system. (Example: Vote “no” on Lee Raymond, lead independent director at JPMorgan Chase)

+ ESTABLISH AN INDEPENDENT CHAIR

The current financial environment requires strong independent board oversight, which is vital to protect the long-term interest of shareholders. In these fossil fuel intensive industries, the risks, challenges, and opportunities presented by climate change will necessitate unprecedented business transformation. Robust oversight facilitated by an independent chair of the board will be necessary throughout this transformation. An independent chair can provide the kind of direction needed to drive these reforms, promote long-term shareholder value, and protect the financial system as a whole. Without an independent chair, the CEO who is also the chair of the board effectively acts as his or her own boss, increasing the risk that short term activity will be misaligned with long-term shareholder interests. The majority of S&P 500 companies have separated the roles of CEO and Chair, and resolutions calling for this structural boardroom reform routinely receive a strong baseline of shareholder support. Many such resolutions would have received majority support last year, but for BlackRock and Vanguard’s votes. (Example: Establish an independent chair at ExxonMobil)

+ CLIMATE RISK MANAGEMENT AND PARIS AGREEMENT ALIGNMENT

At companies that are directly implicated in the production, consumption, and financing of fossil fuels, there are a number of resolutions that call directly on these companies to report on their plans to manage climate risks and align their business strategies with the goals of the Paris Agreement. Given the significant systemic risks and potential opportunities associated with climate change, companies need to set firm targets to begin the process of fundamentally transforming their businesses fundamentally transform their businesses to achieve the rapid decarbonization required to combat the climate crisis. (Example: Proposal to articulate a roadmap to align activities with the Paris Agreement at Total)

+ LOBBYING AND POLITICAL SPENDING

Lobbying and political spending resolutions typically call on companies to enhance disclosures concerning either their political expenditures on elections or their lobbying activities, such as payments to lobbyists at the state and federal levels, payments to trade associations used for lobbying, and payments for grassroots activities aimed at influencing policymakers. While companies are required to disclose their direct federal lobbying expenditures, state disclosure policies vary widely and companies often use trade associations to influence public policy indirectly. Membership in and payments to these trade associations can be a significant source of misalignment between a company’s behavior and its professed climate goals, which can give rise to reputational risk. Many similar resolutions would have received majority support from shareholders in 2019 had major asset managers BlackRock and Vanguard voted in support. (Example: Lobby disclosure resolution at Southern Company)