Shareholder Season: Navigating Corporate Governance
Increasingly, pension funds are realizing the impact they can have by actively engaging in stewardship opportunities, ultimately leading to a more resilient fund and ensuring a dignified retirement for public city and state workers.
Between April and June each year, most public corporate Annual General Meetings (AGMs) take place. These AGMs offer a rare opportunity for stakeholders to confront the board and senior executives of investor-owned corporations directly. During these meetings, companies can be held legally accountable and face scrutiny in the court of public opinion.
This year, investors in some of the most egregious corporations are demanding action on climate commitments.
With over $6.5 trillion in investments, U.S. public pension systems wield significant influence over corporate strategy, transparency, and climate action through proxy voting. These shares, whether owned directly or through the external asset managers the fund hires, translate into votes—a powerful tool for leveraging pension dollars to impact corporate behavior regarding climate change.
But what does "shareholder engagement" on climate have to do with retirement security?
Active proxy voting and corporate engagement are integral parts of the democratic process within public companies, as investors have a direct stake in the company's success. It is also a key aspect of pension systems' fiduciary responsibility. To safeguard the fund's health, a state pension fund must ensure that the companies in which it invests are acting responsibly.
While limiting material risk is not a novel concept for institutional investors, many pension funds are not adequately integrating climate risk into their strategies despite its potential short-, medium-, and long-term impacts on individual corporations and the financial system as a whole.
Pension funds have the capacity to lead by encouraging corporations to transition to renewable energy, develop emission reduction plans, promote equitable business practices, and safeguard worker health. Additionally, they can influence banks and insurers to disclose their lending and insuring ratios between renewable energy and fossil fuel companies.
During "shareholder season," a myriad of proposals or resolutions are presented. Investors engage with corporate leaders to encourage policy adoptions without resorting to a vote during the AGM. Regarding climate risk, numerous groups and shareholder campaigns are gearing up for specific resolutions and director votes to push companies to act on climate change.
This year, a record number of proposals are filed, with organizations and shareholder networks coordinating, engaging, and tracking resolution activities. Notable resources include the CERES Engagement Tracker, Climate Action 100, and Climate Arc AGM (Annual General Meeting) Climate Data Tool.
Pension funds have the capacity to lead by encouraging corporations to transition to renewable energy, develop emission reduction plans, promote equitable business practices, and safeguard worker health.
How can pension funds strengthen their shareholder power for future seasons?
At CFA, our focus during shareholder season begins at the end of each year, where boards of trustees vote to enhance proxy voting guidelines. This proactive approach is essential and translates into actionable steps during shareholder season.
We advocate for three proven methods to achieve this:
Ensure proxy and corporate engagement policies explicitly address climate risk as systemic risk. By integrating the responsibility to tackle climate risk into investment policies, pension funds can lay the groundwork for active proxy voting and corporate engagement.
Strengthen Proxy Voting Guidelines to provide clarity on how the pension fund makes voting decisions regarding director votes, shareholder resolutions, and corporate engagement strategies.
Implement robust directives and standards for external managers and service providers hired to manage portfolio mandates. Conducting due diligence ensures that asset managers' behaviors, including investment decisions, engagement, and proxy voting performance, align with the fund's values and risk management decisions.
For more detailed guidance on these pathways and a checklist to evaluate your pension fund's engagement on climate risk and successful examples from across the country, please refer to our "Know Your Shareholder Power" section of our Investing in Our Future guide.
ABOUT CLIMATE FINANCE ACTION
Climate Finance Action (CFA) is a women-led, 501(C)3 non-profit organization equipping stakeholders and decision-makers to leverage the transformative power of publicly-held capital for real-world climate solutions to ensure a just transition to an inclusive economy in favor of people and the planet. With a focus on collaboration, education, and strategic partnerships, CFA has facilitated groundbreaking dialogues, developed comprehensive educational materials, and engaged with numerous stakeholders— educating 8,000+ union leaders and members and advising over 40 state treasurers and pension staff working towards policy reform.