Climate Proposals: ESG Shareholder Activism Sidestepping Board Authority

Abstract

Investors have in recent years attempted to add climate proposals to the ballot of shareholder meetings, requesting climate disclosures, say on climate, or emission targets. However, many corporate law systems view environmental (and social) issues as matters of strategy and statutorily attribute substantive competence for such matters not to the shareholders meeting, but to the board of directors. As a consequence, boards can often refuse to put ESG proposals to a shareholder vote. The existing literature describing the global differences in ESG activism often fails to acknowledge these obstacles and the significant jurisdictional differences in this regard. While shareholder competence to submit climate proposals is relatively unrestrained in the United Kingdom, other jurisdictions – especially the Netherlands – are much more restrictive, to the point that ESG activism in the form of shareholder proposals is mostly destined to fail. Such differences undoubtedly are a crucial factor in explaining the disparity in the number of proposals submitted in those jurisdictions. This insight also points to an inconsistency between the calls for ESG engagement – in financial law, European company law, and soft law initiatives – and the distribution of powers in national corporate laws. In corporate law, little attention is paid to shareholders’ actual power to take up the task that financial law gives them, and there is currently no European or international initiative aimed at addressing this issue. The paper therefore analyzes from a comparative perspective the various solutions that investors use, or could use to submit climate proposals, either ad hoc or on a more systematic basis. These include, inter alia, requesting a merely advisory vote and exploiting the tension between the board’s strategic power and the power of the shareholders meeting to amend the company’s constitutional documents.

Keywords: say on climate, climate proposals, climate resolutions, ESG shareholder activism, shareholder power, precatory resolutions, advisory votes, comparative law

JEL Classification: K22