Climate activists’ next battle will be for individual board seats

Wet’suwet’en hereditary chiefs led a protest outside the headquarters of the Royal Bank in Canada on April 7, over its financing of a gas pipeline.
Wet’suwet’en hereditary chiefs led a protest outside the headquarters of the Royal Bank in Canada on April 7, over its financing of a gas pipeline.
Image: REUTERS/Carlos Osorio
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The group of three hereditary chiefs from the Wet’suwet’en First Nation in British Columbia had traveled across the country 2,700 miles (4,345 km) to Toronto. They had come to the Royal Bank of Canada headquarters hoping for an improvement in the bank’s climate policy. Instead, they got what they called an insult from its CEO.

RBC’s annual shareholder meeting, on April 7, was changed from in-person to online-only at the last minute, so the chiefs hung out in front of the office and dialed in. One by one, they asked CEO David McKay about the Coastal Gaslink Pipeline, a 416-mile (670-km) project that will run through Wet’suwet’en land, and that of at least 19 other First Nations. Chief Na’Moks John Ridsdale and his peers voiced concerns about impacts on water quality and wildlife, the risk of spills, and the threat of global climate change. RBC, the world’s fifth-greatest lender to fossil fuel projects, is financing the pipeline.

McKay’s response was that the bank only takes on projects it deems environmentally responsible, and that the pipeline “meets the obligations of free and prior informed consent of First Nations.”

“Our jaws were literally laying on the floor,” said Sleydo’, a spokesperson for the chiefs. “We couldn’t comprehend that he was trying to tell our chiefs that he had their consent.”

Things didn’t get much better from there. RBC shareholders rejected four separate climate-related resolutions that would have required the bank, among other things, to publish a report on its environmental strategy and curb lending to fossil fuel companies.

The chiefs weren’t the only climate activists to recently lose a shareholder battle over climate change. A tumultuous two-month stretch of annual shareholder meetings is wrapping up, during which climate-savvy investors raised a ruckus at nearly every major US and European bank and oil company. They have few victories to show for it; most climate-related shareholder resolutions failed to receive majority support.

As shareholder activist groups strategize for next year, more are planning to take direct aim at corporate managers who don’t deliver on climate. And although outright victories remain rare, the vote gap is closing as more mainstream investors recognize that climate change is a business risk.

“Companies that aren’t transitioning aren’t good investments,” said Danielle Fugere, president of shareholder group As You Sow. “That message is loud and clear.”

Climate activist shareholders made slow progress in 2022

The 2022 shareholder voting season started strong, with a winning proposal at Costco in February asking the company to set a strategy for eliminating carbon emissions from its value chain by 2050. And it ended strong, with winning resolutions on May 25 at Exxon (to report on its financial exposure to climate risk) and at Chevron (to report on methane emissions).

But there were plenty of losses in between. Resolutions to curb oil and gas lending at top fossil fuel financiers like Bank of America and JPMorgan carried less than 20% of the vote. Resolutions at several oil majors demanding a climate plan in line with the Paris Agreement scored in the 20s and 30s. Shareholders rejected climate proposals at insurers like Chubb, and voted to rubber-stamp subpar climate plans at French oil major Total and Shell. Even the startup asset manager Engine No. 1, which orchestrated a climate coup on Exxon’s board last year, voted against proposals at Exxon, Chevron, and several banks, saying the proposals were too micromanaging of the companies’s operations.

Still, most of these pro-climate proposals got more support from shareholders than they have in past years. Ben Cushing, a campaign manager at the Sierra Club, said more investors are demanding companies follow the International Energy Agency’s warning that no new fossil infrastructure can be approved if the Paris Agreement is to remain within reach.

“It was really important that that central litmus test was elevated in this conversation,” he said. “And to get even 10% on the first year a proposal was filed is a signal to management that there’s a significant chunk of investors, representing tens of billions of dollars in capital, whose support will continue to grow.”

Asset managers like BlackRock are holding back climate votes

For more proposals to win, they will need to win support from the “Big Three” asset managers—BlackRock, Vanguard, and State Street—which each control a disproportionate number of shares in nearly every big company. Despite adopting their own long-term decarbonization plans, the Big Three still vote against most climate resolutions. On May 11, BlackRock executives said they would support even fewer resolutions this year, since the resolutions have become more specific and exacting.

Although averting climate risk is in the long-term interest of the portfolios these firms manage, their voting officers remain averse to any vote that puts them at odds with the company. In the US, they’re also under pressure from Republican politicians in several fossil fuel-reliant states to not appear prejudiced against the oil and gas industry, lest they lose lucrative fees from managing public pensions. And in a comment on May 20, an HSBC asset manager suggested another reason for opposition: He and many of his peers don’t see climate impacts as a concern because they’re too far in the future (the manager was suspended after HSBC’s CEO said the comments didn’t reflect company policy).

If the Big Three are serious about reaching net zero—and shielding their clients’ money from climate risk—they don’t have time to ask companies politely, in private, to change, said Eli Kasargod-Staub, executive director of the group Majority Action. They need to vote.

“A couple of years ago it was very significant for them to even say climate was a risk. That was low-hanging fruit,” he said. “But there’s no low-hanging fruit anymore, and little room for virtue-signaling. Either they continue to countenance the expansion and financing of fossil assets, or they don’t.”

Board votes are the next front

Another unsuccessful campaign was one Kasargod-Staub ran to unseat Michael Wirth, the CEO of Chevron; Kasargod-Staub said Wirth has failed to carry out climate resolutions that passed at last year’s shareholder meeting. Wirth kept his seat. But Kasargod-Staub said to expect more targeted campaigns against board members next year as climate proxy battles heat up and turn more personal. Ousting managers is the strongest measure shareholders can take to hold companies accountable, and the threat of a board seat battle could make managers more willing to compromise with shareholders on climate issues in advance. These fights are hard to win—but doable, as Engine No. 1 proved. New Securities and Exchange Commission rules adopted in November to streamline the board voting process will help.

“People see voting out directors as an escalation,” Cushing said, “but certainly that needs to be on the table for investors who feel like their demands and expectations are being ignored.”