Shareholder resolutions

Engaging stakeholders, managing activism and avoiding adverse reputational and commercial impacts

Shareholders are becoming increasingly aware of climate change risks.

Since early 2017, both Australian and foreign companies have faced a wave of climate change-related shareholder activism. Ceres maintains a Climate and Sustainability Shareholder Resolutions Database, which at February 2020 showed around 1,068 resolutions that had been put to companies worldwide since early 2017.

In 2020, advisory resolutions requiring energy companies to set scope 3 emissions targets have attracted close to, or over, 50% support from investors and funds.

The 2015 Federal Court case of Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia,¹ and its subsequent appeal,² demonstrate the limits of shareholder activism in Australia. Shareholders cannot propose resolutions that seek to 'usurp the powers' of directors, nor can shareholders propose advisory resolutions. This means shareholders typically cannot propose resolutions, for example, expressing the opinion that the directors are failing to adequately account for climate change risk. Where shareholders can propose a resolution, it is open to — and indeed incumbent upon — directors to comment on the merits of the resolution (or lack thereof). This means directors may advise the general meeting that the proposed resolution is not in the best interests of the company.

'In 2018 there were 17 shareholder resolutions submitted to shareholder meetings, of which 14 related to disclosure of climate risk, emissions or targets.'³

During the 2019 AGM season, superfunds were present in pushing companies to act on climate change, while activist shareholders doubled down on the call from regulators to ensure disclosures align with the TCFD recommendations.

Shareholder resolutions were brought by Market Forces and the Australasian Centre for Corporate Responsibility (ACCR) against a number of companies.

In light of the decision in ACCR v CBA above, both Market Forces and the ACCR proposed special resolutions to amend the constitutions of these companies to allow shareholders by ordinary resolution at an AGM to express an opinion, make a request or ask for information about the way in which a power of the company vested in the directors had been, or should have been, exercised.

At the same time, Market Forces and the ACCR proposed ordinary resolutions contingent on the amendment of the company's constitution. The ordinary resolutions included:

• 'Transition planning disclosure' - that companies disclose strategies and targets to reduce exposure to fossil fuel assets in line with the Paris Agreement, including eliminating exposure to thermal coal in OECD countries by 2030 (Market Forces).
• 'Lobbying inconsistent with the goals of the Paris Agreement' - that the companies suspend memberships of industry associations where a major function of that association is to undertake lobbying that is, on balance, inconsistent with the goals of the Paris Agreement (ACCR).
• 'Paris goals and targets' - that the board disclose details of how the company's capital expenditure is aligned with the Paris Agreement; targets for reductions in the company's emissions; and details of how the company's remuneration policy will incentivise progress against the targets (ACCR).
• 'Exposure reduction targets' - that the company disclose targets to reduce investment and underwriting exposure to coal, oil and gas assets, along with plans and progress to achieve the targets (Market Forces).

As none of the special resolutions were passed, the ordinary resolutions above, which were contingent on the amendment, could not be put. However, the voting data is still available. The resolutions put by the ACCR relating to lobbying attracted the greatest support, receiving between roughly 15% and 30% support. The resolution put by Market Forces to a number of companies relating to 'transition planning disclosure' also attracted 30.33% support in one instance, but less than 10% support from the shareholders of some other companies.

Key risks

While relatively few resolutions have been successful in Australia to date, some have resulted in changes to climate change practices, and shareholder support for such resolutions is increasing.

Shareholder resolutions can be a signifier of general interest in a company's activities, and can be a precursor to more sustained activism, including judicial and/or non-judicial complaints. Unless managed appropriately, shareholder activism can also have adverse reputational and commercial impacts.

Key questions

• Has your organisation mapped out its stakeholder profile and assessed the likelihood that any stakeholder constituency might raise concerns about your organisation's current approach to managing climate change-related risk?
• Does your organisation have a strategy for engaging with your stakeholders (such as investors and civil society) ahead of AGM season, and how effective is that strategy?
• Does your organisation assess likely resolutions to be put, and questions to be asked, and have appropriate responses?