Asset owners committed to carbon neutrality are failing to push polluting companies to decarbonize. That’s the finding of new research published by Critical Climate Votes – a Sunrise project initiative – which contrasts the Net Zero Asset Owner Alliance’s (NZAOA) pro-engagement discourse with its members’ actual voting practices on climate. Surprisingly, joining the Alliance does not improve members’ voting records. The report also points out the lack of transparency regarding how asset owners cast their votes and monitor the implementation of their voting mandates by service providers. Reclaim Finance supports the report’s recommendations. We also call on the alliance to equip itself with the right tools to make sure its members achieve real-world impacts through engagement: strengthening its target-setting and monitoring protocols is needed for the alliance to remain credible.
Talking the talk, but not walking the walk
The report examines 46 asset owners that were part of the NZAOA in September 2021 (the UN-backed group now has 61 members – including 10 French investors (1) – managing $10 trillion). While the NZAOA puts a lot of emphasis on engagement (2), the findings underscore three main weaknesses in members’ voting practices on climate:
- A lack of direct involvement – Out of 46 asset owners part of the NZAOA only 13 of them directly exercise their voting rights on climate-related shareholder proposals. In a response to the report, the NZAOA explains that “engagement is often executed through asset managers” and recalls that it has published proxy voting engagement guidelines to help asset owners engaging asset managers on their voting programs. We consider that delegating votes to asset managers is a legitimate choice, but this should not mean signing a blank check. However, the report finds a large proportion of NZAOA members have little insight into how their voting mandates are being exercised by service providers (3) and the alliance’s guidelines fall short of guaranteeing effective, Paris-aligned proxy voting practices (4).
- A lack of ambition – NZAOA members were early adopters of climate stewardship strategies but joining the NZAOA did not improve their voting record on climate compared to non-member peers. All asset owners are more likely to vote in favor of climate resolutions at fossil fuel companies. However, this voting behavior only applies to weak management resolutions on climate reporting or inadequate “climate plans”, but not to shareholder resolutions asking major oil & gas companies to set ambitious quantitative targets to reduce emissions. This suggests that asset owners remain reluctant to push emitters to actually shift their business models to align with 1.5°C.
- A lack of transparency – 39% of NZAOA members do not make public how voting decisions are typically being made and about two-thirds of them do not publish a formal escalation strategy that would link demands with increasingly stringent sanctions ultimately leading to divestment.
In short, the report provides yet another example of the shortcomings of finance’s flagship initiatives to address the climate crisis: net zero alliances generally struggle to translate principles into concrete action from their members.
The case of AXA: weak and inconsistent voting record
The French insurer AXA is a prominent member of the NZAOA. It also encapsulates the report’s findings on the lack of ambition of alliance members’ climate voting practices, especially when it comes to fossil fuel companies. At Shell’s 2021 Annual General Meeting (AGM), AXA voted against a shareholder resolution requiring the oil & gas major to set emissions reductions targets in line with the Paris Agreement. At the very same AGM, AXA approved the so-called climate plan proposed by management, which allows the company to invest billions of dollars in upstream oil and gas and to exclude petrochemicals from its emissions targets (5).
The report’s findings on AXA’s problematic voting behavior at Shell can be generalized to the entire fossil fuel industry. In 2021, AXA proved it could back ambitious shareholder resolutions on climate at ConocoPhillips and Chevron (6). However, the asset owner also voted in favor of TotalEnergies’ failing climate plan (7), just days after co-signing a statement denouncing the plan’s shortcomings (8).
Missing the mark: a flawed target-setting and monitoring protocols
Faced with these challenges regarding engagement and voting, the NZAOA could have put in place remediation measures, especially through its target-setting protocol. Indeed, the NZAOA requires its members to set alignment targets and report their performance on four pillars: engagement, sector targets, (sub-)portfolio emissions and financing the transition. On engagement, the NZAOA’s target-setting protocol falls short of defining what effective engagement entails (9). The overwhelming majority of proposed targets are focused on means of implementation instead of results. Under the Alliance’s protocol, an asset owner can justify the effectiveness of its engagement policy simply by reporting on the number of bilateral and collaborative engagements it supported, the number of asset managers it engaged, or even the frequency of its contributions to NZAOA position papers. The concrete outcomes of each engagement, or lack thereof, do not really matter.
Additionally, the framework fails to clarify what would be appropriate escalation tactics and does not reckon with – nor does it track – asset owners’ ability to have a direct influence through the submission and championing of climate resolutions. Finally, and despite engagement targets being the only mandatory ones under the target-setting protocol, only 30 members out of 61 members have set such targets for 2025.
Sometimes described at the “gold standard” of net zero alliances, the NZAOA has a specific responsibility to address the structural shortcomings of its members’ engagement approach, notably on the voting-related issues highlighted by Critical Climate Votes’ report. Reclaim Finance supports this report’s conclusions and we call on the alliance to equip itself with the right tools to make sure its members achieve real-world impacts through engagement.