As investors prepare for the 2022 proxy season amid a mounting climate crisis, Ceres released new guidance for investor engagement with companies on governance of climate risk.
Investors and proxy advisors can use the 2022 Ceres Guidance for Engaging on Climate Risk Governance and Voting on Directors for directly engaging with portfolio companies on the risks and opportunities emerging in the transition to a net zero emissions economy and to inform their voting decisions on electing board directors.
Ceres’ release of the Guidance follows an historic 2021 proxy season in which investors voted out some directors for not meeting their corporation’s climate goals, most notably at ExxonMobil, where three dissident board members were elected. More recently, a growing number of asset managers have stated they are willing to vote against re-electing corporate directors who fail to deliver on climate governance.
Investors increasingly recognize that strong corporate climate governance is needed if we are to limit average global temperature rise to 1.5 Celsius and prevent the most catastrophic, irreversible effects of climate change.
”Strong climate governance is particularly critical given the urgent, systemic and non-diversifiable risks that this crisis poses to the economy and to investors’ portfolios, as well as the significant threats it poses for individual companies,” said Cynthia McHale, Ceres senior director, investor engagement. “This new guidance provides U.S. investors with a clear view of what corporate boards should disclose and the actions needed to mitigate corporate exposure to carbon pollution risks.”
In releasing this guidance, Ceres emphasized that disclosing climate-related risk governance is called for in the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, specifically by two of the 11 TCFD recommendations. The 2021 TCFD Status Report found that the two TCFD Governance recommended disclosures remain among the least implemented of the TCFD recommendations. The Guidance supports the view that governance disclosures should instead be among the first steps taken by executive teams and boards serious about their management and oversight of climate-related risks and opportunities.
Moreover, the Climate Action 100+ Net-Zero Company Benchmark reinforces the importance of climate risk governance as a key step toward achieving net-zero emissions. The Benchmark measures the progress of corporate performance against key indicators of success that align with the initiative’s high-level goals including improving governance on climate change. The next iteration, to be released in March 2022, is composed of two types of assessments including a Disclosure Framework and Alignment Assessments and will include disclosure indicators on climate governance, TCFD disclosure, and climate policy engagement. Ceres, one of the founding partners of Climate Action 100+, helps to coordinate investor engagements with companies in North America.
“We believe this guidance will be very helpful in shaping our corporate engagements and decision making for any potential votes against directors this coming proxy season,” said Andrew Collins, director of ESG Investing, San Francisco Employees’ Retirement System, one of the signatories to Climate Action 100+.
Investors and proxy advisory firms increasingly engage companies on climate-related risks and opportunities, informing their engagements by looking to the TCFD framework and the Climate Action 100+ Net-Zero Company Benchmark assessments. They use similar disclosures and tools to inform their director voting decisions, holding board members accountable for the oversight and actions needed to drive their climate commitments to the net-zero transition.
“Some corporate board members are already showing leadership on climate governance, but others still need to step up their oversight and governance of climate-related risks and opportunities. We hope this new guidance will help to inform the approach of boards at companies that have catching up to do,” said Melissa Paschall, director of governance within the Ceres Accelerator for Sustainable Capital Markets at Ceres.
“Boards of directors can use this Guidance in their internal discussions, as they oversee their companies’ climate-related risks and opportunities. I look forward to hearing more about what corporate boards are actually doing in the area,” said Rhonda Brauer, founder & president of RLB Governance and former corporate secretary & governance officer at The New York Times Company, who consulted for Ceres on this initiative.
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.