A recent shareholder proposal against Toyota Motor Corp. is an indication that corporate boards are going to have to continue to address concerns about climate change or be targeted for removal – even if they’ve achieved exceptional stock price performance.
At its recent annual shareholder meeting, some investors pushed to deny the re-election of the board chairman and other members of the board even though the car maker has delivered a 62 percent return (including dividends) over the last five years. A climate resolution summitted by Danish pension fund AkademikerPension and two other European asset managers asked that the board be more transparent about its lobbying efforts against climate change regulations and accused the company of being slower than competitors in pursuing the electric vehicle market, which is better for the environment. U.S public pension funds CalPERS, CalSTERS and the New York City pension system supported the resolution, which also challenged the reappointment of Toyota’s chairman, Akio Toyoda, grandson of the company’s founder over concerns the board might not be independent since he had previously served as company CEO.
Although the resolution was defeated, that fact that some investors wanted directors to lose their positions over their approach to climate change shows how much weight the issue continues to command in the marketplace. It also demonstrates how important it is for the board to give investors a clear understanding of how the company’s approach to climate change will impact the future growth and performance of the company. Luckily for Toyota’s board members, they issued the company’s detailed plan to move into the electric vehicle market days before the vote on the resolution. The plan reassured shareholders that the board did recognize the opportunity in electric vehicles and had a viable plan to win significant market share. However, it shouldn’t have taken a shareholder resolution for transparency and threats to remove board members to get the board to share its business strategy.
What happened at Toyota Motor is just a reminder that when it comes to climate change, boards should consider the following:
• Survey the largest, most influential shareholders and regulators. Climate change will continue to be a major issue for boards, so engaging with shareholders about their concerns is almost mandatory. Each company will need to address aspects of climate change issue that are unique to its industry and the communities it serves. Direct talks with investors and regulators will help the board craft climate change strategies that are responsive to investor concerns and effectively support company goals.
• Address climate change concerns within business strategy. Addressing climate change concerns doesn’t have to hurt the company’s current business. The board should be open to innovative proposals that use new technologies to cut carbon emissions, lower costs and increases efficiency. Developing new lines of business to replace fossil fuel dependent products (or any line of business that is being phased out) is an essential part of sustaining any healthy business. Consider linking compensation to reaching company goals related to addressing climate change. Adopt winning strategies of other companies and hire consultants who have experience with climate change strategies to help if needed.
• Communicate your climate change strategy to the marketplace. Clearly communicating how you are addressing climate change concerns in the proxy statement or during quarterly conference calls is a good way to avoid claims that the board is putting the company at risk through its lack of action. Demonstrating that the board has a plan that addresses climate change and will positively affect the future growth of the company will build trust among investors.
