Shareholders in Canada’s largest banks will vote next month on a raft of social and environmental issues, including whether investors should get to sign off on the firms’ environmental policies and plans to cut carbon emissions. 

But some shareholder consultants and activist investors with environmental bents are concerned that the proposed changes could backfire, weakening companies’ climate-change plans by shifting the responsibility to investors who are ill equipped to evaluate their policies. 

“We generally support climate proposals,” said Jamie Bonham, director of corporate engagement at Vancouver-based NEI Investments. “But this is an imperfect solution to a genuine problem.”

Proposals like the ones facing the Big Six banks are part of a movement known as Say on Climate. For the past several years, shareholders in some of the world’s biggest public companies have pushed for the resolutions, which urge the companies to let investors vote on their climate-change plans each year. The resolutions are meant to put pressure on the companies to create robust plans to curb their impact on the environment and ultimately eliminate or compensate for their carbon emissions by 2050.

The British billionaire Chris Hohn helped catalyze the movement. Last year, Hohn received overwhelming support for Say on Climate resolutions that his firm, The Children’s Investment Fund Management (TCI), endorsed at Canada’s two major rail companies, Canadian National and Canadian Pacific. The movement is gaining steam globally, with several heavy emitters like Rio Tinto and BHP Group having voluntarily adopted the practice of letting investors vote on their climate plans. 

This year, Canada’s six largest banks are bracing for votes on similar resolutions filed by the Montreal-based Mouvement d’éducation et de défense des shareholders (Médac) that, if passed, could compel them to get shareholder sign-off on their climate plans. 

“We saw that some big companies adopted the practice last year. And we thought it was a good thing, especially for the banks, because they are the ones financing the big polluters, said Willie Gagnon, a director at Médac. 

In its proposals, Médac, an advocacy firm focused on bolstering small shareholders’ influence on companies, cited a 2020 report that placed RBC, TD and Scotiabank among the top 10 fossil-fuel financers in the world, with BMO and CIBC ranking 16 and 21, respectively. The funding—more than $130 billion combined in 2019—conflicts with shareholder expectations and the banks’ commitments to transition to a green economy, said Gagnon. Each bank is encouraging shareholders to reject the proposals. 

Bonham agrees that the banks generally lack the ambition to reach their stated climate goals. But he said NEI, an activist firm that applies environmental and social lenses to its engagement with portfolio companies, plans to vote against the resolutions. “Say on Climate is a symptom of a genuine problem,” he said. “Investors aren’t seeing the level of ambition nor the level of transparency on climate strategy that we need to see. That being said, this is not a one-size-fits-all solution, and we do have concerns about how it will be applied.” 

Gordon Raman, a partner at the law firm Fasken working in corporate finance and governance, said Say on Climate might actually absolve companies of some of their accountability for climate progress. “If you have one of these climate proposals and it’s approved, does that mean the directors are off the hook? You could say, ‘The shareholders approved it so it must be OK,’” said Raman. “These are really complicated issues in some instances, and they require a thoughtful analysis by the company on what needs to be done.” 

That’s one reason Matt Price said Investors for Paris Compliance—which aims to hold Canadian firms accountable for their net-zero commitments—also plans to vote against the resolutions before the Canadian banks, which he called “well intentioned, but tactically flawed.” 

Price, director of corporate engagement at Investors for Paris Compliance, pointed to the Say on Pay movement, on which the more recent climate proposals are modelled, which gives shareholders a vote on executive compensation. “There’s evidence that those don’t really work,” he said. Indeed, votes on executive compensation plans typically get over 90 per cent shareholder support, but in the decade since Say on Pay became commonplace, compensation for top executives has soared relative to lower-ranking employees’ wages, according to a report from the Washington-based Economic Policy Institute. However, the report notes, there is evidence that multiple failed votes can temper C-suite pay overtime. 

Say on Climate may be even more susceptible to a rubber-stamp treatment from shareholders, said Price. “Say on Pay is fairly simple. Either the CEO gets paid X or Y. It’s binary stuff,” he said. “Climate change is not.” 

Bonham echoed concerns that shareholders may not be equipped to evaluate the complexities of a climate-change plan and make a qualified ruling on whether it’s a good one. “I don’t think investors have the capability to really get into the nuance of those strategies and decide on whether they are the right way forward.” 

“We don’t share those opinions,” Gagnon said of the concerns raised about the proposals. “We think Say on Climate is better than nothing and that’s a way shareholders can clearly express their approval of the policies.”

Without Say on Climate votes, Gagnon said environmental plans might be rubber-stamped by a company’s management, anyway. “Shareholders wouldn’t have the occasion to say what they think about it,” he said. “It’s not just the vote that matters,” he added. “The resolutions create an opportunity at the meeting where we can talk about [the plan] and for shareholders to say things they wouldn’t say otherwise.” 

NEI generally pushes for climate progress at banks and heavy emitters by targeting their lobbying on the topic and encouraging them to set clear targets to cut emissions, said Bonham. For its part, Investors for Paris Compliance has filed resolutions with RBC, seeking stricter standards for issuing sustainability-linked loans and bonds so they can’t be tied to oil and gas projects. “I think Say on Climate may be overtaken by more robust, more specific proposals on climate,” said Price.

Hohn’s firm TCI did not respond to questions from The Logic about criticisms of Say on Climate.  

Despite its critics, Say on Climate is gaining support. In 2020, Mark Carney, the head of impact investing at Brookfield Asset Management, endorsed the initiative as a way to give shareholders some authority over companies’ transition strategies and avoid “overly prescriptive” plans from regulators. Other high-profile investors and asset managers, including the University of Oxford and the Canadian pension-fund manager Caisse de dépôt et placement du Québec (CDPQ), have also embraced the measure, and at least 23 companies have voluntarily adopted it. 

CDPQ, which as of Dec. 21, 2021 held stakes in BMO, Scotiabank, RBC and TD totalling nearly $1 billion, would not say whether it will vote for or against Say on Climate proposals at Canada’s banks next month. Spokesperson Kate Monfette told The Logic it’s “in the process of analyzing proposals.” She added, “As an institution that has committed to have a carbon-neutral portfolio by [the end of] 2050, we must understand the plans of our investee companies in this respect. In that context, Say on Climate can be one of the tools.”

While top proxy advisors ISS and Glass Lewis are recommending more climate-focused voting at this year’s annual meetings, they haven’t broadly endorsed Say on Climate. Rather, they’re evaluating proposals on a case-by-case basis.

Raman said the advisors may be waiting for regulators to make the first move before taking a definitive position on companies’ climate plans. It’s a move investors and companies are bracing for. In January, Canada’s banking regulators, the Office of the Superintendent of Financial Institutions and the Bank of Canada, published the results of consultations with six financial institutions, showing that, under every stress-test scenario, transitioning to a low-carbon economy would increase the likelihood of companies defaulting on loans across key industries and reduce Canada’s GDP by about 10 per cent. The organizations recommended banks should set aside more capital to deal with the impending defaults, and the OSFI said it would issue draft guidelines later this year for climate-risk management. 

 “This whole area is ripe for movement as the securities regulators start to put forth their own proposed rules on what kind of disclosure they expect from public companies,” said Raman. “We’ll see that come into play in the next year or so.”