“Ambiguous” Rules Restrict French Climate Stewardship
Corporate governance laws are limiting the ability to lodge resolutions, as pressure grows for greater transparency on voting and engagement by asset managers.
French shareholder resolutions on climate themes are being hindered by the country’s corporate governance laws, with the lack of voting clarity from asset managers also presenting obstacles.
A recent report from think tank 2° Investing Initiative (2DII) on investor engagement with French firms’ transition plans found that regulations are limiting the effectiveness of shareholder resolutions. In particular, asset managers are only currently obligated to publish their votes for their socially responsible investment-labelled (SRI) funds. This means non-SRI funds are under no obligation to communicate on how they vote on climate- or other ESG-related resolutions.
“The lack of transparency on voting practices means that French investors are not accountable to their clients or to external stakeholders on their climate action or on their engagement with investee companies,” Agathe Masson, Shareholder Engagement Campaigner at NGO Reclaim Finance, told ESG Investor. “It is urgent that they disclose this information and provide additional details about how they credibly engage high-emitting companies on climate issues.”
2DII’s report flagged that several stakeholders have advocated for regulatory reforms to empower shareholders in relation to climate matters. It also highlighted “mounting pressure” to address weaknesses in the French legal framework, providing shareholders greater say in climate matters.
Masson also said ambiguous” rules have discouraged the filing of shareholder resolutions in the country.
Under France’s Commercial Code, one or more shareholders representing at least 4% of the share capital can file a resolution at smaller listed firms, falling to 0.5% for larger ones such as Total. But there are many caveats, including in relation to the rights of shareholder associations or investor coalitions, which must be registered with French financial regulator Autorite des Marches Financiers (AMF).
“The law in unclear about the nature of resolutions that can be filed, which has led several companies such as TotalEnergies to refuse to include shareholder proposals to their AGM agenda.” Masson added.
In March, France’s updated SRI label came into effect, which excludes investment in companies launching new projects to explore, exploit or refine oil and gas reserves, and requires a Paris Agreement-aligned transition plan.
Shifting dynamics
2DII said investors should support proposals from the Climate and Sustainable Finance Commission, which was established in 2019 to provide the AMF technical expertise and insights on changes in the market and practices. This suggestion would require a mandatory and binding climate resolution to be included on the agenda at any large firm’s AGM.
However, the think tank said the largest change to climate engagement dynamics in France is likely to come from the EU Corporate Sustainability Reporting Directive’s (CSRD) requirements to disclose transition plans in management reports. As a result of CSRD, all relevant companies must disclose a transition plan irrespective of investor engagement on the subject.
According to 2DII, these reforms offer a “significant step towards transparency and sustainability”.
Masson added that stakeholders can ask publicly for increased transparency, using comparisons with other countries or investors, as well as pressing for increased regulation regarding disclosure on climate votes.
Laggards and leaders
According to voting analysis results from Dutch campaign group Follow This, French asset managers trail the UK, the US, Norway, and the Netherlands in investor transparency, where most institutional investors publish their votes.
French investors either lead or lack transparency, the research suggested. It found that five of the 12 largest investors in France – including Natixis Investment Managers, Rothschild & Co, and Société Générale – did not disclose their voting behaviour during annual meetings of oil majors in 2023.
“The French landscape of institutional investors demands closer scrutiny regarding climate stewardship,” Follow This noted. “Transparency, especially concerning positions on crucial climate- related resolutions, remains a significant issue among French investors, particularly during annual meetings of oil majors.”
Alongside Amundi and AXA, Follow This flagged Ofi invest Asset Management – France’s fifth largest asset management group with more than €206 billion (US$233.2 billion) in AUM – as becoming a leading responsible investor in France.
Last week, Ofi coordinated a group of 16 international investors representing more than €780 billion in AUM in issuing an open letter, calling on six European oil and gas firms – including BP, Shell and TotalEnergies – to halt their fossil fuel expansion plans and to boost their investments in sustainable energies.
Total offered shareholders an advisory vote on its 2024 sustainability and climate progress report at its AGM on 24 May.
Collective engagement
Reclaim Finance’s Masson described the collaborative initiative as “unprecedented”, adding that it sends a strong signal to oil and gas firms.
“Collective engagement is essential when it comes to achieving meaningful change as companies are more likely to be responsive to investors’ concerns and proposals when they are voiced by several of their shareholders at once,” Luisa Florez, Head of Responsible Finance Research at Ofi, told ESG Investor. “This initiative embodies a shift when it comes to collective engagement as it shows that investors are willing to publicly escalate their dialogue with companies.”
Reclaim Finance’s Masson said combining efforts and assets under management gave investors “a stronger voice” when asking companies to reduce emissions.
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