Local shareholders should be given the same rights as their peers in the United States and the UK to call public companies to account on environmental, social and governance issues at their annual meetings, the Australian Council of Superannuation Investors said.
In a report released on Thursday, October 26, 2017, ACSI stated that Australia’s corporate rules restrict shareholders from making non-binding resolutions at annual general meetings (AGMs) to hold public companies to account on important ESG issues.
ACSI chief executive Louise Davidson said shareholders in similar jurisdictions, such as the US and UK, have used non-binding resolutions to improve company disclosure on risks associated with sustainability, climate change, labour and human rights.
Australian rules, however, require a constitutional change for such a resolution, which needs 75 per cent of the votes in favour to pass. That is too restrictive, ACSI argues.
The report, titled Shareholder Resolutions in Australia: Is there a better way?, stated that the current voting threshold is so high only one resolution has passed – the 2016 Rio Tinto board-endorsed resolution in favour of improved climate-related disclosure.
ACSI wants Australian public companies to allow non-binding shareholder resolutions, maintaining the current threshold of 5 per cent of capital or 100 shareholders for bringing proposals.
This would escalate ESG issues where company engagement is not working, Davidson said.
“We have seen a rush of shareholder resolutions this AGM season that are actually seeking to create a non-binding vote in individual companies,” she said. “We think this issue would be better dealt with on a market-wide basis. The business case for the proposed reform is solid. Shareholders lose money when companies ignore ESG risks.”
She said investors and companies are increasingly focused on financially material ESG issues, but there is still more to be done.
“Ultimately, we want to see all companies better managing climate-related, labour and human rights, or disclosure risks,” she said.
ACSI represents 31 member funds, with a collective funds under management of $1.6 trillion. The council’s stakeholders, which are mostly industry super funds, own 10 per cent, on average, of every company in the ASX 200.
Davidson said the council’s members and other asset managers consulted for the report agreed that a non-binding resolution was a good step towards better company disclosure.
“We want to see all companies better managing climate-related, labour and human rights or disclosure risks and our proposal for reform will help deliver this,” she said.
She pointed to Australian Prudential Regulation Authority director Geoff Summerhayes’ comments earlier this year that some climate risks are distinctly “financial in nature and many of them are foreseeable, material and actionable now”.
Davidson said several public companies had already signalled support for the proposed changes.