USS to vote against individual directors on climate transition plans

Our new Stewardship and Voting Policy will see us vote more personally against responsible directors where possible. We’ll do this where, among other things, a company hasn’t disclosed its climate transition plan, doesn’t meet our diversity expectations, or where executive pay doesn’t align with company performance.

This approach is a change from voting more generally against a company’s Annual Report and Accounts and allows us to hold individual directors accountable – research suggests taking a more personal approach to voting is more likely to drive change, which is why it’s now at the forefront of our voting policy.

As a long-term, responsible investor, we believe in being active stewards of the companies we invest in. This means encouraging companies to address material issues, including environmental and social ones, to create positive change and long-term financial value for our members. In the year ahead we aim to be more rigorous in our stewardship and will seek tangible outcomes from our engagement with the companies we invest in.

Exercising our right to vote is a fundamental part of this – voting on the decisions made by directors and their companies allows us to influence their environmental, social and governance (ESG) outcomes and disclosures, as well as things like their Net Zero targets. For example, we expect our investments to disclose their climate transition plans so we can track, support, or challenge their progress where appropriate.

Looking ahead to the 2023 voting season, we’ll consider voting against management on various systemic risks that have a financial impact. For example, where:

• a bank hasn’t publicly disclosed their climate transition plans.
• an oil and gas company hasn’t disclosed a breakdown of money spent on new, or expanding, projects that will add to their carbon footprint.
• a UK company doesn’t comply with the Modern Slavery Act reporting requirements.

When it comes to climate change, we recognise that there are huge financial and environmental risks if it were left unaddressed. That’s why we’ll consider voting against management at companies that have a Transition Pathway Initiative (TPI) score of less than three. The TPI evaluates what the transition to a low-carbon future looks like for companies and assesses their progress. Companies with a score of less than three are either unaware of their climate impact, not doing enough to address it or are only just starting their journey.

We’ll also continue to use our voting power at this years’ company Annual General Meetings to support appropriate climate-related resolutions. Supporting these proposals allows us to encourage further climate-related developments and support the company in fulfilling their climate plans.

But where a company is lagging in its climate ambitions or disclosures, we will use our vote to push for change. In 2022 we voted For Shell’s shareholder resolution 21, which pushed for them to set interim targets for reporting scope 3 emissions. This is something we welcome so that we can also report on our own Net Zero progress.

From January to December 2022, we voted at 35 management led Say on Climate votes. These give shareholders the opportunity to support or reject a company’s climate transition plan or support their progress. We supported 71% of these, as their plans met our key climate criteria or positive progress had been made. An example of one that we didn’t support was Barclays; we believed their climate targets weren’t ambitious enough to achieve Paris alignment and we wanted strengthened lending policies for their oil and gas clients.

We also supported 74% of shareholder climate change proposals throughout the year. These proposals cover a broader climate remit, from asking for improvements to climate transition plans – like more ambitious carbon reduction targets – to further disclosure on their funded lobbying groups whose objectives don’t align with their own. The proposals last year ranged from improved disclosure of the risks and opportunities arising from climate change at ExxonMobil Corporation, to further disclosure on corporate lobbying at several Australian oil companies, which we believe is key to successful decarbonisation.

While climate change is a priority financial risk, as an investor with a long-term view, we also consider how to identify and prioritise other risks. In 2023, we are looking at how we can address additional systemic risks that may have a financial impact, such as voting on biodiversity loss or antimicrobial resistance. These are very challenging issues for individual pension funds to address so we will likely collaborate with others to address them.

For more information on our voting and voting records visit how we vote.