Engagement hotspots: the unusual climate suspects

The list of corporate hotspots of climate engagement has its usual suspects – the large polluters from the upstream sectors: oil and gas, mining, chemicals, cement, iron and steel.

Investor-led initiative Climate Action 100+ even has a list of 171 'focus companies', which it says are the heart of the climate transition, with 80% of them being upstream entities. 

Nevertheless, the usual suspects are not the only corporates on shareholders' radar. In fact, this proxy season, climate-related shareholder resolutions have flowed downstream into sectors such as finance, food and beverage, healthcare and technology.

Data from the United Nation’s resolutions database suggests that nearly 50% of all climate-related motions filed this year were targeting household names, such as Kraft Heinz, Amazon and Netflix.

On the face of it, this seems rather surprising. After all, the carbon-intensive production of fossil fuels, materials and chemicals still accounts for the bulk of global greenhouse gas emissions.

Why then, is pressure flowing downstream? And perhaps more importantly, what does it say about the state of engagement?

Moving Beyond Carbon

One hypothesis to explain the downstream focus is that the scope of engagement is rapidly widening. When the conversation moves beyond carbon, it makes sense for the focus and thus the pressure to move downstream. 

At Yum! Brands, for example, which owns Taco Bell, Pizza Hut and KFC, the spotlight is firmly on plastics pollution.

A resolution proposed by shareholder advocacy group As You Sow argued that “corporations could face an annual financial risk of approximately $100 billion should governments require them to cover the waste management costs of the packaging they produce, a policy increasingly adopted around the globe."

Moreover, there is also the fact that carbon dioxide is not the only greenhouse gas of concern. 

Industries such as commercial agriculture have only recently come under the scanner for their GHG footprint. It is the largest source of non-CO2 emissions such as methane.

In a resolution filed at American restaurant chain Texas Roadhouse, Boston Trust Walden Company said: “Not only is agricultural production susceptible to climate change, it also contributes approximately 22% of anthropogenic greenhouse gas emissions."

The resolution called on the company to set credible GHG reduction targets that addressed its supply chain emissions.

Methane, plastics recycling, waste management and deforestation risk are issues that investors are increasingly associated with corporate climate transitions. By expanding the scope of dialogue, investors are looking to deepen their engagement with so-called 'demand side' companies.

According to Adam Matthews, chief responsible investment officer at the Church of England Pensions Board: “Having a focus on the demand side, and understanding how quickly individual companies or sectors can accept oil and gas dependencies, and how quickly they can move to alternate energy sources, I think should be a key priority."

Financed emissions

Another key change in the engagement focus is the way investors interpret corporate climate responsibility.

Hitherto, the consensus was that companies are responsible for what they emit. Now, resolutions reflect a new definition: it is also about what the company funds.

Climate resolutions have increasingly targeted indirectly financed emissions, such as emissions that are financed by companies, often through their retirement funds. For example, in the US 401 (k) plans have come under scrutiny. 

In a recent series, Net Zero Investor highlighted the tensions that emerged from investors targeting Amazon’s $17 billion retirement assets.

Investors have claimed that in so far as climate change affects employee’s long term financial interests, it is a factor that seems relevant to employee satisfaction and prudent human resource management.

At the recently concluded Netflix annual general meeting, As You Sow raised a similar concern. The group’s shareholder relations manager Gail Follansbee asked the board: “How will Netflix protect its employees’ life savings from the economic consequences of climate change?”

The shareholder resolution filed by Follansbee and her team noted: “Netflix has selected Vanguard Target Retirement funds as the plan’s default offering, which invest significantly in fossil fuel companies and companies contributing to deforestation.”

Companies have pushed back, citing concerns about micromanagement and the efficacy of such disclosures.

Netflix, for example, responded to Follansbee’s concerns by saying that “to produce the requested report would be an unnecessary and unwise use of both management and the Board’s resources."

Investor pressure on corporate climate action has embraced a list of unusual downstream suspects. It suggests a deeper alteration in the ethos of climate engagement. 

However, as engagement enters new terrain, fresh tensions between shareholders and corporates seem inevitable.