01 Aug Frankfurt Notes – How to make your “Say on Climate” a success

In the last blog post, we discussed one of the overlapping areas of IR and ESG work, namely perception studies. This article deals with another intersectional topic that has become perhaps the most discussed subject of the AGM season: “Say on Climate” (“SoC”). GEA Group AG was the first company in the DAX index family to hold an SoC in April 2024.

The distribution of “Say on Climate” to date

The SoC initiative was only founded in 2020 by hedge fund manager and founder of The Children’s Investment Fund, Chris Hohn. Most of the companies that have held an SoC vote so far operate in industries that are associated with high greenhouse gas emissions. These include the energy sector and the property industry, for example. The financial sector plays a special role, as some of these companies, such as Amundi or Credit Suisse, also conduct SoCs.

Globally, however, there were fewer SoC votes in 2023 than in the previous year (2022: 43, 2023: 28), which is probably due to the fact that even the pioneers of the movement will at best have their climate strategy voted on every several years.

Success is based on consistent preparation

In Germany, GEA Group AG was the first member of the DAX index family to put its climate strategy to a vote in 2024. The shareholders voted in favour with an outstanding result of 98.44%. GEA’s “Climate Plan 2040” comprises the short, medium and long-term targets for reducing greenhouse gas emissions along the value chain, including the timetable, fields of action and necessary investments. GEA’s path to net-zero emissions in 2040 is based on three pillars: transformation of its own operations (Scope 1 and 2), transformation of the product portfolio (Scope 3 downstream) and decarbonisation of the supply chain (Scope 3 upstream). GEA Group AG expects to invest EUR 175 million to achieve the decarbonisation of its sites by 2040.

In general, companies received high approval rates for their voting points on SoC. On average, this was 89% in the 2023 Annual General Meeting year and therefore even slightly higher than in the previous year (87%). However, according to a study by Morningstar, support from 25 institutional investors such as BlackRock, Amundi and DWS Investments fell from over 90% (2021) to around 70% (2022 and 2023).

When interpreting such figures, it is important to realise that the vote can only ever capture the mood of the current shareholder base. Particularly climate-conscious investors may not be invested and therefore not be able to vote at the Annual General Meeting – or others may be put off by a climate strategy that is perceived as overambitious and therefore also not represented.

Furthermore, in many cases, companies are caught between profitability and sustainability (at least in the short term). If an ambitious climate plan is of direct economic benefit to the company, investors are more likely to support high targets. If sustainability and profitability are in conflict with each other (in the short term), this leads to challenges. Extensive explanation and corresponding transparency, cooperation across departmental boundaries and support from the management board are essential here.

“Say on Climate” as an element of sustainable corporate governance

In our view, companies interested in this concept should therefore pay particular attention to the following points:

1. Strategy first, vote second. Only with a well-developed, transparent and scientifically confirmed climate strategy can you expect a meaningful vote and a high level of approval from your shareholders. SoC should therefore only be an issue for those companies that have already done their homework on their climate strategy, which requires the support of the Board of Directors.
2. The intensive study of best-practice examples and the ESG requirements of proxy advisors and key institutional investors will give you an impression of whether your climate plan is ready for approval. For the best possible preparation, we recommend a well-conceptualised perception study that allows you to precisely capture the perception of the status quo and the expectations of key capital market players.
3. Give the climate plan plenty of space in your ongoing IR work and at corporate governance roadshows in the run-up to the Annual General Meeting. Be prepared for many questions about its stringency, but also about the economic effects and the associated earnings opportunities and costs.
4. A convincing vote is the starting point, not the end. Be prepared to provide your investors with ongoing, transparent reporting on the key indicators of your climate strategy. They will demand transparency in order to understand the progress of your activities.
5. Votes on changes to your strategy and annual reports on progress: The decision to put your climate strategy to a vote presupposes a willingness to repeat this process every few years.

To summarise, SoC can be an important building block and approach for promoting sustainable corporate practices. Because this topic affects ESG as well as investor relations, legal and strategy, it should be approached in a cross-functional way. Contact us if you have any questions on how to best align your ESG strategy and investor relations work.