Poor climate plans will trigger votes against board members in 2023, Railpen warns firms

UK pension fund Railpen has threatened to vote against board chairs at companies that don’t have credible climate transition plans, as part of an update of its voting policies.

The £35bn scheme for railway workers outlined its thinking on ESG issues ahead of the 2023 annual general meeting (AGM) season.

On climate transition plans – the strategies that firms are increasingly expected to publish details showing how they will conduct business in order to reach net zero by 2050 or earlier – Railpen said insufficient plans could trigger a vote against the chair of the committee overseeing the document, which may include governance or sustainability committees.

“Where we have severe concerns about the credibility of a transition plan, including where it unduly prioritises the use of [carbon] offsets over real world decarbonisation or does not sufficiently protect against the risk of biodiversity loss, we may additionally consider voting against the chair of the board,” the policy stated.

The pension fund added that, for companies that it is explicitly engaging with on decarbonisation, it expects executive pay to be aligned with climate metrics, targets and performance.

Last month, Legal & General Investment Management told its investee companies that it would vote against their pay packages if they fail to link a fifth of long-term incentives to reaching net zero.

Railpen said biodiversity and the social implications of the climate transition were important considerations in transition plans.

The updated voting policy puts more emphasis on social issues beyond climate, too, saying that it “does not believe that directors will be able to pursue the objective of increasing long-term shareholder value without developing and sustaining broader stakeholder relationships, to oversee the effective management of long-term risks and opportunities”.

As a result, Railpen will consider backing the appointment of workforce directors at portfolio companies. In the UK and US, it may also vote against the chair of the nomination committee or other directors at big companies that don’t have “at least one ethnically diverse representative” on their board.

Mental health and fair pay are two other priorities outlined in the new document.

Railpen said its preference is to engage with holding companies on these topics, but “where there appears to be a significant risk to the long-term value of the investment, we will consider selling our shares”.

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