According to shareholder disclosures, investors have cited climate change as a reason for opposing the election of a management-backed director at 225 U.S. companies so far this year, up from 157 in 2021 and 83 in 2020. Hannah Orowitz, U.S. head of environmental, social, and governance at Georgeson LLC, which provides strategic shareholder services to corporations and shareholder groups, analyzed the preliminary 2022 data, which includes figures through July 7.
Votes on corporate directors are typically held at annual shareholder meetings, along with proposals on how companies should disclose or set targets on climate change and diversity, both of which are becoming more common. Although votes on proposals are not legally binding in the United States, shareholders can vote directors out of office.
According to Ms. Orowitz, the opposing votes were mostly cast by European investors and sustainability-oriented managers who often hold smaller stakes in U.S. companies. So far, they have resulted in drops in support for the directors under consideration rather than outright rejections.
However, major U.S. institutions such as asset manager Nuveen LLC and the California Public Employees' Retirement System are joining in, as climate-conscious investors consider what to do other than vote on sustainability-related proposals.
"How do you raise awareness of this issue?" "You have to create a very structured, transparent campaign—and yes, voting against the director absolutely sends a very clear signal," said John Hoeppner, head of US stewardship and sustainable investing at Legal & General Investment Management America, an early adopter of the tactic.
LGIM, the $1.8 trillion asset-management arm of London-based financial services firm Legal & General Group PLC, has voted against the election of the chairmen of more than 200 companies it believes aren't taking climate change seriously over the last five years.
Lessons from the Diversity Initiative
Investors are following in the footsteps of their successful push to increase diversity in corporate leadership, according to Mr. Hoeppner, who added that nearly every S&P 500 company now has at least one woman or person of color on its board. When it came to climate change, investors "learned from that," according to Mr. Hoeppner.
LGIM's voting indicates that companies are attempting to appease investors. Mr. Hoeppner said the asset manager put 80 companies on notice in June, down from 130 the previous year, after they improved disclosures, set climate targets, or implemented policies. Voting occurs a year after companies have been warned, giving them time to make changes and avoid votes against their chairmen.
Berkshire Hathaway Inc., owned by Warren Buffett, is one of the companies that investors say hasn't done enough to combat climate change. BlackRock Inc., which owns more than 6% of the company, voted against the re-election of two Berkshire directors last year, citing "shortfalls in the company's governance practices and climate action planning and disclosure." Mr. Buffett stated in February that one of the directors, Thomas S. Murphy, stepped down due to illness and died in May. Walter Scott Jr., the other, died last year. They were both in their 90s.
Berkshire did not respond to comment requests.
According to Eli Kasargod-Staub, executive director of Majority Action, a nonprofit that pushes shareholders to take action on climate change and other issues, some Berkshire directors have received less support in the last two years after the conglomerate faced criticism for failing to address climate change.
According to Mr. Kasargod-Staub, a minimum requirement for many investors comparing companies' climate change positions has been whether the companies report information in accordance with recommendations from the Task Force on Climate-Related Financial Disclosures, or TCFD.
However, as information becomes more widely available, some investors are targeting targets that they perceive to be too modest, according to Mr. Kasargod-Staub. According to Majority Action's research, nearly $8 trillion in corporate stakes in the United States have policies in place to vote against directors if companies do not have aggressive climate-change targets in place, such as those aligned with the 2015 Paris agreement to limit global warming.
PPL Corp., one of the few publicly traded U.S. utilities that had not set a net-zero target by 2021, or achieved a balance between emissions produced and those removed from the atmosphere, is one company where director support has recovered as a result of new climate measures. Last year, PPL Chairman Craig Rogerson received 78 percent support. This year, it recovered to 94 percent after the Allentown, Pa.-based company set a net-zero goal in response to the 2021 voting results. According to proxy adviser Institutional Shareholder Services Inc., management-backed directors at U.S. companies typically receive more than 95 percent support.
"We recognize that climate change and emissions reductions are important to many of our shareowners, and we value the feedback we receive from our shareowners," a PPL spokesperson said, adding that the company has reviewed and raised its climate targets over the years.
Investors take various approaches when determining which directors to oppose. LGIM votes against chairmen, while Nuveen and Calpers single out sustainability directors.
This year, Nuveen, which manages more than $1.2 trillion in assets, voted against directors at more than 70 companies for climate-related reasons, the first time the firm has done so, according to Peter Reali, a member of the firm's responsible investing team. The effort came after Nuveen, a subsidiary of the Teachers Insurance and Annuity Association of America, requested improved disclosures and targets, as well as stronger oversight of climate risk, in 2020.
"If we don't see a willingness to move along the journey, then yes, we will vote against boards," Mr. Reali said.
Nuveen intends to identify the directors it opposes and explain why later this year.
Calpers, the largest pension fund in the United States, said it voted against a record 95 directors at 26 companies this year after they failed to respond to its requests for more aggressive climate policies.
Is it working?
It is difficult to pinpoint the role of one factor, such as voting, among the many that can cause companies to change their positions on an issue.
A spokesperson for NextEra Energy Inc., another large U.S. utility that did not have a net-zero target last year, said the company's recent announcement of an ambitious climate plan "wasn't a reaction to any specific stakeholder request," but was part of a long-term strategy shift. Sherry Barrat, the company's lead independent director, received below-average support at shareholder meetings in 2021 and 2022. Ms. Barrat declined to comment through a spokesperson for NextEra.
Simiso Nzima, managing investment director for global equity at Calpers, offered one broad indicator of progress: "A decrease in the number of 'against' votes over time is a sign of progress," he said.
Calpers, for example, said it voted against 133 directors this year due to a lack of progress on increasing board diversity, down from 468 in 2018, attesting to the steps companies have taken.
The parallel with diversity, according to Mr. Hoeppner of LGIM, isn't perfect because it's easier to demonstrate progress when it comes to something as obvious as the representation of a specific group at a company.
Â