Climate in the Boardroom:

• Three asset managers—Amundi, Franklin Templeton, and Legal & General Investment Management (LGIM)—stood out for their leadership in using proxy voting to hold the directors of companies vital to the net zero transition accountable for ensuring their operations and business models are in alignment with 1.5°C-aligned pathways.

• Conversely, the four largest and most influential asset managers, BlackRock, Vanguard, State Street, and Fidelity provided overwhelming support to the directors of U.S.-based companies with operations and business models that were most misaligned with 1.5°C pathways. BlackRock and State Street supported the entire board at 82% and 76% of these companies, respectively, while Vanguard and Fidelity supported the entire board at 100% of these companies.

• ISS’ U.S. benchmark recommendations supported the entire board of directors at 88 percent of the most 1.5°C-misaligned companies vital to the net zero transition. At these climate-critical companies, the proxy advisor’s benchmark recommendations were more management-aligned than all but four of the 16 asset managers analyzed.

• Overall, the largest asset managers failed to hold boards accountable at the subset of 1.5°C-misaligned companies without a net zero by 2050 ambition. Ten of the 16 asset managers and proxy advisor ISS’ U.S. benchmark recommendations supported the entire board at the majority of these companies without this crucial precondition for alignment with the aims of the Paris Agreement. Only Amundi, Franklin Templeton, and LGIM voted against at least one director at each of the companies without a net zero ambition.

• Among the firms analyzed, there was no year-over-year increase in acknowledgement that climate oversight firmly rests with the board of directors. Furthermore, while most proxy voting policies analyzed recognized the need for director accountability at companies that did not meet climate performance expectations, the overwhelming majority of these expectations were so low as to rarely trigger a vote against the directors of companies with operations and business models most misaligned with the Paris Agreement goal of limiting warming to 1.5°C.

Voting on director elections at companies vital to the net zero transition is the most direct action long-term investors with broad market exposure can take to influence corporate decision-making and protect the value of their portfolios as a whole from climate change impacts. While dialogue and resolutions have been used to encourage change in corporate behavior for many years, the imperative of driving near-term change requires clear and explicit proxy voting policies and action that hold directors accountable for climate oversight and that address the material risk facing diversified investors, particularly from companies that have demonstrated reluctance to achieve net zero carbon emissions by 2050.

For Asset Managers and Proxy Advisors

Before the 2024 shareholder season, asset managers should adopt or update proxy voting policies designed to address the material and systemic risks facing shareholders from climate change, featuring, at a minimum:

• Acknowledgement that climate change (a) is a systemic risk that (b) the asset manager should mitigate via proxy voting, consistent with fiduciary duty.

• Expectations for company climate performance that include:

  • A commitment to achieve net zero by 2050 at the latest;

  • Medium-term targets consistent with cutting emissions in alignment with the IEA’s NZE scenario;

  • Capital expenditures consistent with net zero by 2050; and

  • Policy engagement consistent with net zero by 2050.

• A commitment to generally vote against directors at companies that do not meet climate performance expectations.

For Asset Owners

Asset owners, as clients of large asset managers, can hold those managers accountable for managing their proxy voting strategies to ensure that companies are aligning their targets, business models, policy influence, and governance to the objective of limiting warming to 1.5°C. To that end, asset owners should:

• Review and update voting policies to ensure that they enable asset owners to hold board leadership accountable for climate performance at systemically important companies involved in the production and consumption of fossil fuels, including alignment with the standards set out for asset managers above;

• Engage with their current asset managers over their voting record and plans for holding boards accountable for companies’ contributions to systemic climate risk; and

• Incorporate criteria regarding proxy voting on systemic climate risk and at companies vital to the net zero transition into their asset manager search and selection criteria, for example as an explicit element of due diligence questionnaires.

For Policymakers

Given the size and influence of the largest asset managers, and the substantial systemic risks posed by climate change to individual investors and the financial system, we urge policymakers to take action, including the below:

• Congress should pass legislation requiring asset managers to consider systemic risks such as climate change in order to comply with their fiduciary duties

• Congress should pass legislation that requires asset managers to update and disclose policies, including proxy voting policies, to mitigate systemic risks to the portfolios of long-term, diversified investors.

• The Securities and Exchange Commission (SEC) should finalize the proposed rule to enhance and standardize climate-related disclosures for investors.

  • The final rule should require companies to disclose information about its direct GHG emissions (scope 1).

  • The final rule should require companies to disclose information about its indirect emissions from purchased electricity or other forms of energy (scope 2).

  • The final rule should require GHG emissions from upstream and downstream activities in its value chain (scope 3) if a company has set a GHG emissions target or goal that includes scope 3 emissions, or otherwise when those emissions are deemed financially material.