Expecting More: Investor Agenda revises its climate action plans
Will engagement tactics change after the 2023 proxy season? New information on investor expectations offers clues
The Investor Agenda, a collaboration of seven industry groups on net zero, has published updated Investor Climate Action Plans (ICAPs), it now also includes recommended action on deforestation as well as practical guidance on escalation and lobbying. What are some of the key changes?
ICAPs are a self-reflective exercise – they outline expectations, often stemming from learning, at some of the world’s largest stewards of capital.
The updates appear to reflect what investors heard and debated in corporate boardrooms amidst a lack lustre proxy season.
The Investor Agenda is a network of networks – it comprises of seven investor coalitions. Some groups such as the Institutional Investor Group on Climate Change (IGCC) are global while others - the Asia Investor Group on Climate Change (AIGCC) and the Australia-based Investor Group on Climate Change (IGCC) are regional collectives.
“Global reach and regional depth”, is the network’s battle cry.
The network’s ICAPs are an assistive tool for investors– they offer a glimpse into a path from commitments to decisions.
“Climate commitments are meaningless without plans and actions. Therefore, every investor needs high-ambition ICAPs that underpin commitments”, the group says.
In that sense ICAPs outline investors’ plans for engagement going forward and reflect learnings from the recent past – what worked? What didn’t? What needs to change?
Here’s what we know from the 2023 ICAPs:
Publish an escalation strategy that explains the actions they will take if a company is not responsive
Escalation
The 2023 ICAPs include a term that warrants attention: “corporate escalation”. The success of investor engagement has always hinged on the severity of negative outcomes.
The dreaded “what if” question has been notoriously difficult to answer – what if the company does not respond to investor engagement?
The 2023 proxy season serves as a reminder of the importance of answering that question.
One assumption is that companies that do not respond positively run a risk of divestment i.e. investors will pull the plug. However, escalation is hardly that straightforward. In most cases, the threat of escalation appears to be facing a crisis of confidence.
The 2023 ICAPs are calling on investors to change this:
The Investor Agenda suggests that investors “publish an escalation strategy that explains the actions they will take if a company is not responsive to their engagement or to their net-zero alignment criteria or asks including clear timeframes for underweighting or divestment should engagement not be successful”.
Lobbying
During the 2023 proxy season, the political footprint of corporates came under the scanner. American truck manufacturer Paccar Inc and aircraft manufacturer Boeing were among a group of corporate behemoths who faced investor scrutiny regarding their climate lobbying efforts.
The concern is not new. In 2022, investors including asset owners AP7 and the Church of England Pensions Board co-signed a statement on responsible climate lobbying.
“Lobbying that seeks to delay, dilute, or block climate action runs counter to our interests. We therefore expect all economic actors to use their influence positively”, the statement warned.
Going forward, it seems likely that investor pressure over corporate climate lobbying will persist.
The 2023 ICAPs include a global call to arms to ensure that portfolio companies publicly disclose their lobbying efforts:
“Review the lobbying activities of all relevant trade associations, portfolio companies and industry bodies to ensure that they support and do not undermine the goals of the Paris Agreement” it says.
Lobbying that seeks to delay, dilute, or block climate action runs counter to our interests. We therefore expect all economic actors to use their influence positively
Materiality of Deforestation
In September 2022, The European Parliament made it harder to sell commodity-based products that were associated with deforestation.
At the time, Helen Bellfield, deputy director at Trase, an organisation gunning for supply chain sustainability transparency told Net Zero Investor:
“Deforestation is historically niche, but it's coming further into the mainstream as more investors appreciate how critical it is to global emissions and biodiversity”.
Come into the mainstream it did. Deforestation is now front and centre of engagement in sectors with commodity-heavy supply chains.
The barrage of climate-related shareholder resolutions within the food industry in 2023 bear testimony to this claim.
The ICAPs reflect this shift. They indicate a strong likelihood that investors “explicitly integrate climate change and deforestation into investment policy statements, engagement strategies, and proxy voting guidelines”.
