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Say No to Climate Change, Say Yes to 'Say on Climate'


Felix Jaeger
MJur student at the University of Oxford and a corporate lawyer in Hamburg, Germany.


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6 Minutes

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To avoid and mitigate the devastating effects of climate change, companies around the world must take responsibility for transitioning to a net zero carbon economy. The ‘Say on Climate’ initiative proposes that listed companies disclose emissions, present a detailed climate action transition plan, and, most importantly, hold an annual mandatory shareholder vote on climate action transition plans. The initiative is run by the Children’s Investment Fund Foundation, which was created by British hedge fund manager Chris Hohn and which has GBP 5.2 billion in assets. ‘Say on Climate’ is targeting companies, asset owners, asset managers, proxy advisors and regulators. The initiative aims particularly at the UK and Italy, chairs of this year’s G7 and G20 summits, to make ‘Say on Climate’ a priority for the 2021 UN Climate Change Conference in Glasgow, UK.

This blog post assesses the potential of ‘Say on Climate’ by first looking at Climate Change as a negative systemic externality in Corporate Governance. Then, it discusses whether making ‘Say on Climate’ mandatory can accelerate the transition to a net zero carbon economy.

I. Climate change as the ultimate systemic negative externality

Since the beginning of industrialisation, the emission of carbon dioxide and other greenhouse-gases (together CO2-e) has led to a rise in global average temperatures, which has disastrous effects on the biosphere. According to a special report from the Intergovernmental Panel on Climate Change (IPCC) in 2018, human civilization is on track to cause global warming of at least a 1.5°C between 2030 and 2052, thereby surpassing the Paris Agreement’s limit. Greenhouse-gas concentration will continue to increase, exacerbated via positive feedbacks such as melting permafrost and the release of stored methane. Should no further action be taken to reduce emissions, global temperatures will be 4.1°C–4.8°C above pre-industrial levels by the end of the 21st century. As a result of ‘doing business as usual’, in the year 2100 average global incomes could be reduced by 23%, and current and future global GDP by 33% and 7% respectively.

Current ‘rules of the game’ have failed to internalise the costs associated with climate change. According to the ‘Say on climate’ initiative, only 3% of listed companies have science-based emissions targets and less than 0.3% have a plan to reach those targets. Corporate law, whose goal is to advance the aggregate welfare of all who are affected by a firm’s activities, must lend itself to be part of the solution. Corporate actors must be incentivized, obliged and disciplined to abate, stop or possibly even reverse climate change and its effects. Given the scale and magnitude of the problem, it is clear from the outset that ‘Say on Climate’ can only be a single small patch next to others to fill the regulatory void.

II. ‘Say on Climate’ can help the transition to a net zero carbon economy

The distinctive feature of ‘Say on Climate’ vis-à-vis other initiatives is the vote at the annual general meeting. ‘Say on Climate’ puts the decision over the climate action transition plans in the hands of the shareholders. The question arises whether they have the incentives and the ability to judge on a firm’s efforts to reduce emissions. Reducing the carbon footprint is costly and not profitable for individual firms and managers. Undiversified shareholders also do not have a monetary incentive to gather information, monitor and vote on climate change action plans, and to sack climate-negligent management. Undiversified shareholders, however, have become the exception in public markets. Institutional investors, such as active and passive investment funds, pension funds and hedge funds, hold a diversified range of assets under management for their beneficiaries. Recent scholarship has shown that institutional investors, who care about their diversified portfolio rather than firm-specific returns, can help to internalise systemic market externalities by engaging with their portfolio companies. As ‘universal owners’, institutional investors are much more concerned about public markets in their entirety, and so it is in their proper interest to reduce idiosyncratic climate risk exposure. Institutional investors today hold 41% of the global market capitalisation and manage 80% of the listed shares in the US and 68% of the listed shares in the UK, respectively. In 2017, the big three investment funds Vanguard and State Street alone held an average of 20.5% of stakes and cast an average of 25% of the votes in director elections in US S&P 500 companies. Passive index funds are now said to account for at least 45% of all assets for US stock-based funds.

Nevertheless, critic Robert G. Eccles has described the initiative ‘well-intentioned, futile, and a drain on the engagement bandwidth of investors’. ‘Say on Climate’ struggles with the legacy of its namesake ‘Say on Pay’. The main reason why ‘Say on Pay’ is regarded by some as a rubber stamp exercise that has led to little control over executive pay is that shareholders care mostly about resolutions that directly affect their returns. Under the current regime, the fiduciary duty of institutional investors towards their ultimate beneficiaries may not even imply any obligation to vote the stocks of portfolio companies, when voting costs are high and returns are low. On the other hand, BlackRock alone estimates a USD 8.2 billion risk in its portfolio due to climate change in case emissions will not be reduced. Thus, for institutional investors ‘Say on Climate’ should be a very different exercise from ‘Say on Pay’. According to news reports, voting records of asset managers in practice so far are weak but improving. As Eccles suggests, coordination and selective action could take the edge of his limited-engagement-bandwidth argument. Correspondingly, more and more institutional investors have started to coordinate via platforms seeking to fight climate change. Climate Action 100+, for example, currently comprises more than 570 institutional investors, representing over 50% of all global assets under management. With pooled resources, institutional investors target the worst polluters, which is a promising start since the top 20 oil, natural gas and coal companies alone emitted 35% of all CO2-e from fossil fuel and cement emissions worldwide between 1965 and 2018.

Besides the interest in portfolio rather than firm-specific returns, passive index funds’ incentive to act on Environmental, Social and Governance issues (ESG) has also been explained by the fact that they seek to attract millennials, who will soon profit from the ‘Great Transfer’ of USD 12-30 trillion in assets from perishing baby boomers and who have social preferences over wealth-maximization. According to a famous letter to investors from BlackRock manager Larry Fink in 2019, 63% of the soon-to-be-heirs in the ‘millennial’ generation wish their investments to have a social impact rather than to make profit. Adding to the effectiveness of ‘Say on Climate’, policymakers could extend fiduciary duties of asset managers to include environmental preferences on equal footing with the beneficiaries’ monetary interest. This will enable institutional investors to openly push for CO2-e emission reduction in their portfolio companies, even when this will lead to reduced profits on the firm-specific level. Such a policy could also encourage asset managers to invest more in casting informed votes.

As regards mandatory environmental disclosure, the general impact on a firm’s individual performance is still subject to an ongoing debate. While Eccles points to a report by the University of Cambridge, which states that ‘compelling evidence of a causal relationship between disclosure and improved performance is lacking’, a more recent paper found that making disclosure of emissions mandatory for companies listed in the UK led to a reduction of 14-18 % of CO2-e emissions without detriment to financial operating performance. Thus, environmental disclosure is not overly burdensome for individual firms.

The ‘Say on Climate’ initiative aims at listed corporations only, which is an important start, as listed companies are estimated to account for over 80% of all industrial emissions. However it must be taken into account that, especially in the fossil fuel extraction sector, only 30% of the 224 fossil fuel extraction companies are public-investor owned and thus the danger of ‘leakage’ of brown investment and activity from public to private companies must be kept in mind. Given these considerations, complementary regulatory action is needed to stimulate climate change action in non-listed firms.


Fighting climate change is pressing. The failure to internalise the costs of CO2-e emissions must be urgently remedied. Regulators should come to aid and give shareholders a ‘Say on climate’. As current research has shown, they are able and incentivized to make good use of it. Further, the yearly reminder through a shareholder vote could abate cognitive biases which lead management to believe that business can continue as usual. The costs of imposing ‘Say on Climate’ now do not seem overly burdensome for individual companies. Thus, a mandatory ‘Say on Climate’ shareholder vote in public corporations is a small but meaningful contribution to accelerate the transition to a net zero emission economy.

Felix Jaeger is an MJur student at the University of Oxford and a corporate lawyer in Hamburg, Germany.

This essay has won the 2021 Oxford Business Law Blog Essay Competition on ‘Business Law and the Transition to a Net Zero Carbon Economy’ and is part of the homonymous series. The competition was open to graduate students of the Faculties of Law of Oxford University, Hamburg University, Freie Universität Berlin and the National University of Singapore.

The ‘Business Law and the Transition to a Net Zero Carbon Economy’  series consists mainly of posts summarizing papers presented and presentations made at the 5th Annual Oxford Business Law Blog conference on ‘Business Law and the Transition to a Net Zero Carbon Economy’ which took place online on 25 to 27 May 2021. The recordings are available here. This post is forthcoming in Andreas Engert, Luca Enriques, Georg Ringe, Umakanth Varottil and Thom Wetzer (eds), Business Law and the Transition to a Net Zero Carbon Economy (CH Beck and Hart Publishing 2021) (forthcoming).


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