Will France’s bet on mandatory ‘Say on Climate’ resolutions pay off?

France’s bet on a mandatory shareholder advisory vote on all listed companies’ climate strategies as part of a wider green industry bill is dividing sector players ahead of a potential definitive adoption this fall.

Modelled on ‘Say on Pay,’ where shareholders vote on a company’s executive remuneration at its annual general meeting (AGM), the ‘Say on Climate’ initiative aims at giving shareholders more power on corporate climate strategies and related performance.

Earlier this year, a coalition of 49 financial actors, including the French Sustainable Investment Forum (SIF), had called for a better dialogue between companies and shareholders through a clear legal framework generalising those climate resolutions.

France’s Financial Markets Authority (AMF) has also invited listed firms to reinforce the communication around their climate plans and the French parliament and government to propose a law that includes a vote on companies’ sustainability report.

The ‘Say on Climate’ amendment, which was first rejected by a special committee early July, was adopted by the French national assembly later that month as part of the government’s green industry bill, a series of measures led by Caisse des Dépôts chairman and ruling party Renaissance (RE) deputy Alexandre Holroyd dedicated to promoting the country’s homegrown clean industries.

In numbers, 271 parliamentary representatives voted in favour of the amendment, while 75 expressed their disagreement and 18 abstained.

Grégoire Cousté, executive director at the French SIF, highlighted in a call with Net Zero Investor that the other deputies who had tabled similar amendments had withdrawn them to make room for this one.

“The obligation to organise a regular ‘Say on Climate’ was openly supported by parliamentarians from all political groups,” Antoine Laurent, advocacy lead at Reclaim Finance, wrote in an email, noting that political rejection had mainly come from the government and part of the presidential majority.

“This is an unprecedented consensus given France’s current highly charged political climate.”

As it has been voted, the amendment requires shareholders to cast an advisory vote during a listed company’s AGM on its climate strategy every three years, and on the implementation of this strategy every year.

Laurent however pointed that the movement was still small.

“This should drive us to question whether or not investors’ claims on engagement are genuine,” he said. “To say it differently, if investors are betting on engagement to switch company practices, why would they not call for the adoption of a tool that would contribute to it?”

According to data by the SIF, companies filed 23 ‘Say on Climate’ proposals against 48 last year, even though the average approval rate on a global scale remained high at 89.2%. In France, this rate reached 93.3%.

This year, the SIF helped table a draft resolution at French power utility Engie’s AGM to compel the firm to present ‘Say on Climate’ resolutions, which led to 25% of positive votes.

Cousté however pointed that the number could be much higher – at nearly 50% – if the state, which holds 25% of the capital and 30% of voting rights, was removed; a sign that shareholders are widely in favour of the institutionalisation of ‘Say on Climate.’

“Submitting climate strategies for shareholder approval increases the accountability of company management and heads, even if the resolutions themselves are not binding,” Laurent stressed. In his view, companies’ reluctance to such resolutions suggests that “they do not wish to be held accountable on climate and want to remain as free as possible to define their strategy.”

“The fact that climate strategies are not easy to design or implement is not an excuse to avoid such resolutions: 1) companies are making pledges and promises on climate, they must deliver on them and robust strategies are one of the basic elements to do so; 2) the ‘Say on Climate’ resolutions are only composed of a few elements and require basic reporting,” he added.

“In fact, much of the content of ‘Say on Climate’ is close to what new regulation and standards are calling for, especially in Europe.”

Mandatory but not binding

If the ‘Say on Climate’ amendment were to be adopted, it would be mandatory but not binding.

This means, Laurent explained, “that companies are bound to submit a ‘Say on Climate’ resolution to their shareholders, but that the outcome of the vote on this resolution would not be binding.”

As such, if the resolution is rejected, the firm will not be forced to change its objectives, he added, “and even more so set a level of ambition for it.”

For Cousté, proposing non-binding resolutions is giving the amendment a better chance at being adopted this autumn, at a time when voluntary climate resolutions are decreasing in France and worldwide.

“We are asking for it to be compulsory because … the trend is not towards the inflation of ‘Say on Climate’ but deflation: less and less companies are committing to doing so,” he said.

“That’s why we consider it important to make it mandatory but not binding,” he added, flagging that this year, there had been less than 10 companies which presented a ‘Say on Climate’ resolution.

Although he admitted that binding resolutions would be much more effective, Laurent believes that non-binding ones will still put strong pressure on companies “as a rejection is a clear signal that the strategy is not considered adequate,” he said.

“The company will therefore have to improve its climate plan if it does not want to lose the confidence of its shareholders.”

Cousté confirmed, convinced that even if just some investors were voting against a company’s climate strategy, that company wouldn’t be able to stand idly by. “We are not going to impose anything on the board; we want a place of collective expression.”

“What we wanted to do was to table an amendment that is ‘plug and play,’ that is easy to use and which can fall under the law,” he stressed. “We wanted something that could be directly operationalised and that’s also why the deputies grasped it much more easily; they realised that it wasn’t going against current law, that there was no cultural revolution to make.”

But for the time being, Laurent noted that the amendment adopted was not imposing any framework to guarantee the quality of these climate plans, nor any penalties in the event of rejection of such plans.

Fear of shareholder activism

In Laurent’s view, “the main reluctance comes from the issuing companies, through their trade association, the French Association of Large Companies (AFEP), including some major listed financial actors.”

“The main arguments put forward were that companies’ transparency obligations had already increased significantly,” he noted, in particular with the arrival of the Corporate Sustainability Reporting Directive (CSRD), which will spur European companies from 2024 to publish detailed information on their social, environmental and governance (ESG) risks and opportunities.

“Public authorities in France are afraid of one thing, it is shareholder activism in a sense that we are going to take power from the company, that we are going to carve it up on governance matters because we don’t agree with the strategy,” Cousté stated. “But it is not on this aspect that we want to intervene … it is on sustainability that we are asking for more commitment.”

According to Laurent, “we could very well expect companies to move forward on their own, if necessary in a coordinated way to avoid losing competitiveness” – a claim that some companies have made against making ‘Say on Climate’ resolutions mandatory.

“But beyond the level of ambition set by some, it’s all a question of timing,” he said.

“The urgency to act is such that changes must be extremely rapid and radical. Neither the market nor corporate social responsibility (CSR) ambitions alone will suffice,” he added, calling on public authorities to use all their available levers to get companies moving – including a “very strong” political will.

Cousté explained that this was one of the AFEP’s arguments: “companies are already doing it well, so let them be.”

The AFEP was not available to respond to Net Zero Investor’s questions.

Some companies have claimed that a new standard like the ‘Say on Climate’ would alter their competitiveness, when Cousté notes that, on the contrary, these resolutions could help them identify risks and opportunities linked to climate change.

In addition, “it was felt that ‘Say on Climate’ as a tool for shareholder dialogue had not really proved its worth,” Laurent explained. “Although we don’t yet have enough hindsight on what this tool actually does, there’s no reason to wait until we know that the climate plans of corporations must be approved – even if non-binding – by shareholders through a democratic vote.”

“It will be the role of regulators and civil society to judge the credibility of the transition plans and the level of support they receive from investors,” he added.

An apparent climate maturity

The final acceptance of the bill still depends on whether the lower and upper houses reach an agreement in October.

Asked whether there was a risk that the amendment would be then rejected, Laurent underlined that neither the Senate nor the government were in favour. “We can therefore fear that it will be withdrawn from the bill in October during the final stage of its examination by the Parliament,” he said.

“In all cases, the green industry law itself will be adopted.”

Cousté is however a little more hopeful now that more players have seized the topic. “We won a battle, but not the war,” he said as he expects adverse lobby from corporate groups while many Republican senators are sensitive to the AFEP’s discourse.

If the amendment is adopted, France could become the first country in the world to require listed companies to consult their shareholders on their climate plan via ‘Say on Climate’ resolutions. Competencies within the financial community will most likely evolve, according to Cousté, as analysing such plans calls for some expertise which investors may not have just yet.

For Laurent, this French singularity is perhaps due to “a widespread awareness of climate issues in France among the population, the media and the economic and political elites, in particular thanks to strong activity on the part of civil society.”

Cousté also noted that historically, France had preferred regulations to soft law on sustainable development, corporate reporting or responsible finance with the Grenelle laws starting from 2007, or the Energy Transition for Green Growth bill in 2015.

“There is some sort of maturity from the past 20 years on these questions, which leads us to want to keep this leadership.”

But Laurent flagged that this “advance” needed to be put into perspective, as France lags behind on the deployment of renewable energies, the transformation of its agricultural model, the decarbonisation of the transportation and industry sectors, and the renovation of buildings.

“In fact, the state has been condemned several times in court for this reason,” he said.

“This lag is also felt in the financial sector, where France has fallen behind some of Europe’s major banking and insurance players.”

If adopted, the government will be responsible for the implementing decree relating to the ‘Say on Climate’ amendment, which Cousté sees as “an easy political gain to take” at a time when the ruling party is being criticised for its lack of action on climate change.