Net zero focus in France growing as climate motions hit corporates

As the proxy season is knocking, a small army of asset owners, regulators and other finance actors in France are seeking to strengthen corporations’ climate disclosures.

In fact, many players are actively attempting to force businesses to include a vote on their company's decarbonisation strategy, demanding a similar approach as to corporations annual financial statements.

At a time when investors require more transparency on corporate environmental disclosures, the 'Say on Climate' initiative requires the disclosure of emissions and company plans to tackle, or at least to manage them.

Moreover, this usually also includes an annual advisory vote for shareholders to express their views on the proposed plans and related performance.

One case stood out in this respect.

Following pressure from The Children's Investment (TCI) fund, Spanish airport operator Aena was the first group to put its climate transition strategy to a shareholder vote in 2020, and has since been joined by multinationals like Nestlé, Moody’s and Barclays.

Disclosures

In March, 48 asset owners, asset managers and other financial stakeholders called for a better dialogue between companies and shareholders through 'Say on Climate' resolutions after France’s Climate and Sustainable Finance Commission (CCFD) pointed to the importance of implementing its regulatory and legislative framework.

The CCFD recommended that resolutions not only become mandatory for companies, subject to the Corporate Sustainability Reporting Directive (CSRD), but also be submitted to a shareholder vote at least every three years.

Under the CSRD, large corporations as well as small- and medium-sized listed enterprises will have to disclose, from 2025, that their plans are compatible with a low-carbon transition, the 1.5 degrees Celsius trajectory and the climate neutrality target of 2050.

France’s Financial Markets Authority (AMF), which set up the CCFD in 2019 to help it carry out its regulatory and supervisory tasks on sustainable finance, also invited publicly listed firms to reinforce the communication around their climate strategy.

“Following the complete entry into application of the EU CSRD and in due course of the Audit directive, the AMF invites the French government and the French parliament to propose a law which includes a vote on the sustainability report during annual general meetings (AGMs),” the markets regulator told Net Zero Investor in an email.

“In this context, there will not be a stricter framework before the 2023 AGM season,” it stated.

Legal framework 

The stakeholders that took part in last month's industry call, such as Assurances du Crédit Mutuel, Eiffel Investment Group and La Banque Postale Asset Management, said the initiative should set out “clear and complete information enabling us to judge the credibility of companies’ climate commitments” at the coming AGMs.

This includes absolute emissions reduction targets for Scopes 1, 2 and 3 for the short (2025), medium (2030) and long term (2040-2050) and action plans to hit them, details on the allocation of capital expenditure and operational expenses, and explanations on the way carbon offsets could be used as a complement to emissions cuts.

Investors also need to be able to assess the alignment of a company with the Paris Agreement’s warming path, according to Marie Marchais, who leads the French Sustainable Investment Forum’s (FIR) engagement platform.

In her view, the AMF’s position is not as ambitious as the CCFD’s, but these are “good signals.”

As an intermediary solution, the FIR had also proposed to put 'Say on Climate' resolutions through the Afep-MEDEF Code, which is the corporate governance code of reference for listed companies in France. 

However, Marchais told Net Zero Investor in an interview that this year, the code had not been updated towards this goal.

“It's up to the government to take it up and provide a legal framework if we want it to become something recurring,” she stressed.

Absent without leave

To date, companies are not constrained to submit 'Say on Climate' resolutions. They can do so on a voluntary basis, but this does not imply they will do it the next year, Marchais said. 

“Voting is what makes climate specific to an item on the agenda,” she added as climate issues are as much about investors as companies’ concerns. 

“But for now, it is not institutionalised at all.”

As such, Marchais stated that “very few” companies which submitted their climate strategy to shareholders’ approval last year in France will do it again this year. 

To her knowledge, only fossil fuel giant TotalEnergies, asset manager Amundi and real estate group Icade are ready to follow in 2023.

“Companies believe that because they’ve had their strategy approved, they don’t have to come back with the implementation of this strategy,” she explained. “Submitting the strategy to validation was already an effort.”

Yet, the framework is progressing in the country, as the Article 29 of France’s Loi Énergie-Climat, which Marchais described as “a French specificity,” requires financial players to report on the impact and the vulnerability of their portfolio on both climate change and biodiversity.

According to climate consulting firm Carbon4, this measure looks to be more ambitious than the EU Sustainable Finance Disclosure Regulation (SFDR), which imposes ESG (environmental, social and governance) disclosure obligations.

But there are other levers allowing shareholders to have their say in corporations’ environmental performance.

Shareholders in power

The CCFD also advised that climate-related resolutions filed by shareholders are tabled on the AGMs’ agenda.

But Marchais noted that, for now, it was still a complex process. “It is doable, but it’s full of legal pitfalls, especially in France,” she warned.

“Very often and very quickly, this is considered infringing on the competencies of the board of directors,” she said, as she referred to the Motte ruling, which reminded shareholders’ AGMs in 1946 of the duty to respect the powers vested in the board. 

“As soon as it touches a little on the strategy of the company, it’s very quickly rejected.”

“It’s the reason why today, the resolutions that investors are trying to table and that we see emerging are resolutions requesting transparency, rather than prescriptive resolutions on the strategy,” Marchais pointed out.

The FIR recently coordinated a coalition of 16 investors who submitted a draft resolution for French power utility Engie’s AGM in a bid to obtain more transparency on the company’s alignment with the Paris Agreement and compel it to present 'Say on Climate' resolutions on its strategy every three years and on the implementation of its strategy annually.

“If there is a generalisation of ‘Say on Climate’ resolutions, this must go with the responsibility of investors to vote in conscience and in an informed manner on the strategy’s ambition, and not just on its degree of transparency,” Marchais concluded.