4 Climate Votes That Matter in This Year’s Proxy-Voting Season

Grappling with the changing climate is typically a big theme in proxy-voting season. But four investor proposals stand out above others, according to Jackie Cook, who oversees the stewardship program at Morningstar Sustainalytics and whose advice is widely sought during proxy season and the rest of the year.

A native of South Africa and onetime Rhodes scholar, Cook has spent two decades studying financial data related to corporate governance and investor advocacy about environmental, social, and governance issues. You can read more of her views about the proxy season here.

While the proxy season is narrowly perceived as taking place during the spring, companies hold meetings and proxy votes all year. (Here’s a primer on proxy voting and another on your rights as a shareholder. For Morningstar’s proxy-season coverage, check here.)

Cook recommends checking out upcoming votes at Bank of America BAC and DTE Energy DTE and past votes at FedEx FDX and Jack in the Box JACK. While the companies, proposals, and shareholder filers are all very different, the proposals “make plain sense,” Cook says. “Why would you not want companies you’re investing in to provide this kind of disclosure or monitor these kinds of risks?”

Moreover, each target was well-chosen by the party that filed the proposal, says Cook. That’s becoming increasingly important at a time when overall shareholder support for climate proposals has waned. Big US fund managers have grown wary amid increasing political hostility, and some large investors have also withdrawn from Climate Action 100+, a major initiative for big investors to engage with companies about decarbonization.

The investors who made the proposals “had to make a very sound business case,” says Cook. For the four, “each of the companies lag in this area and each are exposed to the kind of risk that’s quite material to the business.”

Better Banking

Investors are looking for better details around bank exposure to the climate transition. Thus, the New York City Employees’ Retirement System asks Bank of America to disclose a metric it calls the Clean Energy Supply Financing Ratio. The ratio looks at the bank’s clean energy financing as a proportion of its fossil fuel financing. (That includes equity and debt underwriting and project finance.) It should also define what the bank considers low carbon and fossil fuel. You can read the proposal, as well as Bank of America’s recommendation against it, in the B of A proxy here. BofA’s annual meeting is on April 24.

The proposal is spearheaded by New York City Comptroller Brad Lander, who has made the same ask of other financial institutions. Already, JPMorgan Chase JPM, Citigroup C, and Royal Bank of Canada RY agreed to those asks. Still in his sights are B of A, Goldman Sachs GS, and Morgan Stanley MS.

So, what’s so important about this new ratio? The metric would let investors measure a bank’s transition risk, its progress to net zero emissions, and the pace of the energy transition. “The Energy Supply Ratio integrates both halves of the equation to combat the climate crisis: phasing out fossil fuels and accelerating investments in climate solutions,” Lander says in a statement. (For a primer on net zero, the importance of the 1.5-degree cap, and other global warming concepts, read this.)

“Despite their commitments to decarbonize, US and Canadian banks have financed over $1 trillion of fossil fuel extraction since the Paris Accords,” Lander adds. “The transition from financing fossil fuels to low-carbon energy is going far too slowly—and thus far, it hasn’t even been possible for shareholders to track.” Climate experts have said that reaching net zero greenhouse gas emissions by 2050 is necessary to bypass the most devastating consequences of climate change. That will require a tripling in global clean energy investment by 2030, Lander says, citing International Energy Agency data.

“These quantitative metrics are really what investors want to be able to compare business to business. We know that by 2030 this financing ratio has to be 4 to 1 in order to achieve the 1.5 degree” cap on global warming that is the goal of the Paris Agreement on global warming, Cook says. Bloomberg New Energy Finance has said the ratio of financing for clean energy supply, relative to fossil fuels, needs to reach a 4-to-1 ratio by 2030. At the end of 2022, it was around 0.61-to-1 for North American banks and 0.73-to-1 globally.

Indeed, big banks “would already be tracking data to prepare this kind of metric,” Cook continues. “The principle with a lot of climate disclosure is just do it, get it out there. Shareholders are going to be more lenient if you disclose than if you don’t. Maybe you have to change or adjust [your disclosures], but not disclosing means you raise the ire of shareholders,” Cook adds.

Separately, B of A faces another climate vote: Trillium Asset Management asks the board to report on whether its lobbying aligns with its public commitment to achieve net zero emissions by 2050. B of A recommends investors also vote against it.

Putting the Brakes on Gas

DTE Energy operates an electric company serving 2.3 million customers and a natural gas company serving 1.3 million customers, all in Michigan. On May 2, shareholders of the Detroit-based utility will vote on whether DTE should publish a transition plan that would include the scope 3 greenhouse gas emissions from its natural gas operation. These emissions cause global warming, and scope 3 emissions are the ones a company does not control directly, such as the emissions you and I might make by using our gas stoves if we were DTE customers. The proposal is made by As You Sow, a shareholder advocate. As You Sow wants DTE to publish a climate transition plan that would include the natural gas emissions and align DTE with the Paris Agreement’s goal of holding global warming to 1.5 degrees Celsius above preindustrial levels by 2050. You can find details of As You Sow’s proposal here. DTE recommends voting against the proposal, saying, among other things, that it can’t set targets for emissions “over which we lack control, and for which there are no standardized means of measurement.”

Some 22% of DTE’s carbon footprint comes from its gas segment, notes Kelly Poole, climate and energy coordinator of As You Sow. Already, parts of Michigan are looking to diminish reliance on fossil fuels, which poses competitive risk and potential regulatory risk for DTE. For example, Ann Arbor plans to achieve carbon neutrality by 2030. As You Sow also notes that more than 100 municipalities in 12 states have policies promoting building electrification.

Meanwhile, DTE’s existing electric arm makes it feasible for DTE to promote electricity use and encourage consumers to buy electric appliances. Sales of heat pumps outpaced gas furnaces after the Inflation Reduction Act took effect in 2022. More homes are starting to use electricity for heating than natural gas. In the transition, As You Sow maintains, customers can also have backup furnaces.

In 2022, a similar proposal by As You Sow was supported by 28% of DTE shareholders. “That’s a significant signal that for investors, this is an issue of concern,” says Poole. “We applaud [DTE’s] progress, but these material emissions are not being included in the overall transition plan.”

Says Cook: “Companies will often say they have no control over scope 3 emissions, and therefore that they can’t plan around them. That’s not the point. Whether you can directly control it isn’t material if it means your business fails. Scope 3 emissions are material to this business.” Sustainalytics rates DTE as “highly misaligned” with a 1.5-degree future, suggesting “it’s looking like a risky prospect,” says Cook.

When You Absolutely, Positively Need to Say How Climate Change Affects Everyone

More than a third of FedEx shareholders endorsed a proposal in September that FedEx report on how its climate change strategy affects relevant stakeholders, including employees, workers in its supply chain, and the communities in which it operates. The report would be consistent with the “Just Transition” guidelines of the International Labor Organization and indicators of the World Benchmarking Alliance.

The proposal was made by the International Brotherhood of Teamsters and won 34% of the vote. You can read the full proposal and FedEx’s response here.

So, why is it important if it won just 34% of the vote?

Predicts Cook: “This is a topic that will gain traction, which intersects with the growing interest in workers’ rights and human capital management in general.” Plans for a just transition are increasingly among shareholder expectations for climate transition plans, she notes. “When we look at climate transition plans, shareholders want to see the company has a plan for this.”

Jack in the Box

Finally, if your goal this year was to get companies to report their carbon emissions, then Jack in the Box has you covered. Some 57% of Jack in the Box shareholders endorsed a proposal for the fast-food restaurant operator to disclose its scope 1 and scope 2 emissions.

Scope 1 emissions are those a company creates directly, scope 2 includes those from power it buys from utilities and other sources, and scope 3 are from customers using its products and others in its supply chain. Jack in the Box had recommended rejecting the proposal. You can read the Jack in the Box proposal here.

Says Cook: “That strong percentage support reflects that this is significant for investors. Jack in the Box has been a laggard” that doesn’t disclose scope 1 or scope 2 emissions, much less scope 3. “Even McDonald’s MCD is disclosing scope 3 emissions. If everybody followed Jack in the Box’s trajectory, we’d end up in a 5-degree world.”