Say on Climate resolutions

08 February 2023. Published by Connor Cahalane, Partner, Head of Public Companies

Institutional investors are increasingly calling on listed companies to put their climate transition plans to a shareholder vote in the form of Say on Climate resolutions at their Annual General Meetings.

What are climate transition plans?

A climate transition plan is an action plan which sets out how an organisation proposes to change its existing assets, operations and/or business model to align with the latest and most ambitious climate science recommendations, which include halving greenhouse gas (GHG) emissions by 2030 and reaching carbon net-zero by 2050. As part of the recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD), businesses are encouraged to disclose their transition plans. In April 2022, HM Treasury set up the Transition Plan Taskforce to develop disclosure standard for private sector climate transition plans.

Why are investors calling for Say on Climate resolutions?

As the volume of climate-related legislation and regulation directed at business increases, investors are calling for better disclosure from the companies in their portfolios on whether their business model and operations are compatible with the rapid move towards a low carbon or net zero economy. While disclosure of climate transition plans is recommended by climate related disclosure standards, such as those of the TCFD, many listed companies have not yet published their plans or have published plans which are short on detail and vague on commitments to reduce their carbon footprint. 

While the requirements and priority of each institutional investor can differ, common themes arising from recent Say on Climate resolutions include calling on listed companies to:

  • set out specific targets for greenhouse gas emissions reduction over time;

  • improve emissions related disclosure;

  • improve reporting on the effects of climate change on the business, through both the impacts caused and also the financial risks; and

  • align their corporate behaviour with the Paris Agreement target of achieving net zero carbon emissions by 2050.

Who can propose Say on Climate resolutions?

While for UK listed companies, resolutions for the annual general meeting (AGM) are typically proposed by the board of directors, resolutions can also be proposed by any shareholder holding over 5% of the company's voting rights, or by 100 or more shareholders (holding an average of at least £100 of paid-up share capital per shareholder), provided such proposed resolutions are not ineffective, defamatory, frivolous or vexatious.

Are Say on Climate resolutions binding on the company?

The general position for UK companies is that decisions relating to the day-to-day management of the business are for the board and the shareholders cannot interfere with these decisions. This is typically the case even if the majority passes a resolution proposing to direct the board to act in a certain way (unless the company's articles of association provide otherwise). As a result, Say on Climate resolutions are generally not binding and are only advisory in nature. However, they can nevertheless play a significant role in determining a company's future strategy in relation to climate change.

Board and shareholder proposed Say on Climate resolutions 

Board proposed resolutions 

In a recent paper published by proxy advisory firm, the Institutional Shareholders Service (see 'The Rise of Say on Climate Proposals'), it was reported that there were 24 board proposed Say on Climate resolutions for UK listed companies in 2021, with this number increasing to over 40 in 2022.  Shareholder support for board led proposals has been strong, with 75% of proposals receiving shareholder approval of 87% or higher.  

Shareholder requisitioned resolutions 

The number of Say on Climate resolutions requisitioned by shareholders of UK listed companies has increased from 30 in 2020 to 58 in 2021 to over 74 in 2022. Though the number of shareholder requisitioned proposals is steadily increasing, the same cannot be said for the average support level. Between 2020 and 2022 the average shareholder support level for these resolutions has been between 26% and 35%.

Whilst in many instances shareholder requisitioned resolutions have not been passed at the AGM, they are being used as a tool to raise the profile of climate change issues at board and shareholder level. For this reason, it may be expected that numbers of shareholder requisitioned proposals will continue to increase as investors and other stakeholders push for businesses to adapt their climate change strategies. 

What can boards of listed companies do? 

It seems likely that investor pressure on companies to set out proposals to combat climate change will continue to increase. Therefore, boards of listed companies may wish to take proactive steps to tackle these issues, including putting forward their own Say on Climate resolutions for shareholders' approval.  Doing so would not only signal positive engagement and help to build trust, but may also help to pre-empt any shareholders activist proposed resolutions, and a possible loss of control of communication of strategic direction by the board.  

Stay connected and subscribe to our latest insights and views 

Subscribe Here