Do companies still need to worry about investor pressure on sustainability? 

Climate initiative shuts down citing a lack of ‘seriousness’ among investors, while experts hail a new era of ‘limitations-aware engagement’

When Investors for Paris Compliance (I4PC) announced its closure last week, it said “investor accountability had reached its limits” when it came to shaping corporate behaviour on climate change.

Set up five years ago, the Canadian initiative sought to mobilise shareholders to push their most carbon-intensive portfolio companies towards net zero.   

“It was a different time,” reflects executive director Matt Price. 

“We had this slew of listed companies making net-zero commitments, and there was a lot of optimism, so we jumped in with both feet to harness that momentum.”

Among the victories I4PC claimed in its closing statement was the regular “20-25%” support it got for climate-related requests at companies’ annual meetings. 

But, Price says, when issuers ignored such proposals after the vote, those shareholders didn’t take it any further. 

“There were no consequences,” he tells Real Economy Progress, adding “there wasn’t much seriousness on the part of investors in terms of following through on any of this”. 

It suggests, to Price at least, that investors will never be a meaningful source of pressure on Canada’s big emitters, because “as long as the bottom line is okay, mainstream institutions don’t actually want to rock the boat too much”. 

Corporate governance expert Tom Gosling agrees that some of the optimism has gone out of shareholder engagement, but he thinks the focus on the bottom line is legitimate.   

“There was this idea that, through forceful voting and stewardship, shareholders could just make companies do stuff,” says the professor in practice at the London School of Economics.  

 “And that’s proven to be untrue.”

Gosling and his colleagues held roundtables with 60 major financial institutions as part of a new study about investor influence, published this month. 

He observes that, while there’s still a widespread belief in the importance of stewardship, there was also a growing recognition of its limitations – “and that perhaps its capabilities have been overstated”.

If 25% of a firm’s shareholders want it to introduce a policy that isn’t necessary for the business, management will probably still consider it, as long as it’s not too costly, he notes. 

“But what a quarter of investors cannot do is force the company to adopt an unprofitable strategy.”

For Thomas Gourdon at Acute Investor Services, these unrealistic asks are a source of frustration for both companies and many shareholders. 

Acute is a new proxy advisory firm, and Gourdon’s team has met with more than 100 players in the stewardship space as part of setting it up. 

He says there’s “a lot of fatigue”, especially among issuers faced with demands they don’t feel are material to their business.  

BP recently upset investors by taking the unusual decision to block a shareholder request for details of how it would survive if demand for fossil fuels dropped.  

The oil major argued it already had a strategy to drive shareholder value under different market conditions, so the proposal wouldn’t surface any new material information, but a number of big investors voted against the board in protest against the move. 

While on the surface, the pushback suggests shareholders approved of the climate resolution itself, the outcome of Shell’s annual meeting last week shows it’s not that clear cut.  

Shell accepted an equivalent request to the one BP blocked, thus avoiding a shareholder revolt, but the proposal secured just 13% support – the lowest of any climate proposal at the firm since 2020. 

This indicates that the BP furore wasn’t really about investors wanting the opportunity to pressure fossil fuel companies on net zero, but about the governance implications of banning shareholder proposals from the ballot in the first place.    

Gourdon thinks that investors are getting more discerning about the sustainability topics they’re prepared to push different companies on, but that doesn’t mean they’ll ditch stewardship efforts altogether.  

“Investors are more aware of the nuances of what’s relevant for different companies and sectors, and they’re thinking about other topics [beyond climate change] that might be material,” he explains, pointing to supply chain risks, health and artificial intelligence as examples of subjects that some firms should prepare to receive questions about.   

Gosling says there’s a “recalibration” going on, which is resulting in what his new paper calls “limitations-aware engagement”.  

“Investors are rethinking stewardship, but they aren’t abandoning it,” he argues. 

“It will still play a really important – if slightly more modest – role in the discussion.”