Why Climate-Related and Social Shareholder Proposals Are Difficult (and Rare) in Continental Europe

Investors have in recent years attempted to add climate-related proposals to the ballot of shareholder meetings. While originally these mainly aimed at better disclosure, lately they shifted their focus to demanding ‘say on climate’ (ie to hold an annual—mostly non-binding—shareholder vote on climate transition plans) and requesting concrete emission reduction targets. These proposals are very common in the United States and the United Kingdom, somewhat less prevalent in France, and (almost) non-existent in Germany and the Netherlands. In this post, I argue that, in addition to factors impeding shareholder activism generally, limitations on shareholder interference in strategic matters play a crucial role specifically with regard to environmental (and social) proposals.

Part of the explanation for the lower levels of climate-related shareholder activism in continental Europe is the same as for the lower levels of shareholder activism generally. The existing literature points to differences in stock ownership structures and differences in regulation pertaining to shareholder cooperation and ownership disclosure. Moreover, the ownership thresholds for submitting shareholder proposals are higher in Europe than in the United States. Pursuant to the Shareholders Rights Directive, member states may require ownership thresholds of up to 5% of the share capital. National laws often require lower ownership percentages such as 3% (eg the Netherlands), add alternative criteria (eg Germany), or work with a sliding scale (eg France). Still, all of these thresholds are significantly higher than in the United States. Under SEC rules, it suffices to have continuously held at least $2,000, $15,000, or $25,000 of the company's securities entitled to vote on the proposal for at least three years, two years, or one year, respectively. However, the different ownership requirements cannot explain why shareholder proposals are successful in the United Kingdom, which sets the ownership threshold at 5% (with an alternative requirement that the proposal be sponsored by at least 100 members representing an average of at least 100 GBP each).

In addition to these general factors, there are subject-specific legal factors at work, which also help explain interjurisdictional differences within Europe. Environmental (and social) proposals are almost invariably viewed as dealing with corporate policy and strategy. In most jurisdictions, including Delaware, Germany, France, and the Netherlands, policy and strategy fall under the competence of the board of directors. In a recent paper, I show that there are considerable differences among these jurisdictions as to the possibility for boards to ward off climate-related shareholder proposals on this basis.

In the United States, climate proposals regularly must be included in the company’s proxy materials, despite the possibility to exclude proposals that relate to the company’s ‘ordinary business operations’. It has become even more difficult for boards to invoke the latter exception for climate proposals since a change in approach by the SEC last year. In the United Kingdom, shareholder competence to submit climate proposals is even less restrained. In most UK companies, shareholders have the right to give binding instructions to the board by passing a special resolution. Shareholders successfully use this right for climate resolutions without running into competence-related objections. In France, the boards of Vinci and Total Energies refused to put climate proposals to a shareholder vote in 2020 and 2022. However, a report in December 2022 affirmed that shareholders can hold a consultative vote on the company’s climate strategy, whether at the shareholders’ initiative or upon the board’s instigation.

German and especially Dutch law are much more restrictive, to the point that ESG activism in the form of shareholder proposals is mostly destined to fail. Shareholders cannot oblige the board to organize a vote, not even an advisory one, regarding matters that fall within the decision-making powers of the board, such as climate strategy. They can only try to convince the board to add a climate-related agenda item voluntarily. In the Netherlands, shareholders can also table a ‘discussion item’, which can be discussed in the shareholders meeting but not voted upon. This avenue was used by Climate Action 100+ in its climate-related requests directed to LyondellBasell Industries in 2021.

These different approaches to shareholder competence not only provide an explanation for the disparity in the number of proposals submitted in various jurisdictions. They also expose an inconsistency between the recent calls for ESG engagement—eg in the Shareholder Rights Directive II, the Sustainable Finance Disclosure Regulation, the Taxonomy Regulation, many stewardship codes, and the UN Principles for Responsible Investment—and the distribution of powers in national corporate laws. In corporate law, little attention is paid to shareholders’ actual power to take up the task that financial law gives them. Although there is currently no European initiative aimed at addressing this issue or at regulating substantive shareholder powers, a clear policy choice in this regard seems fundamental for a consistent legislative framework on ESG engagement.

Sofie Cools is Professor of Corporate Law at KU Leuven.