Environmental Issues Reporting on Climate Change 2022 outlines the importance of corporate transparency regarding climate-related risks. It emphasizes the need for companies to disclose their strategies for addressing climate change impacts, aligning with the goals of the Paris Agreement. The document highlights the financial risks posed by climate change and encourages shareholders to seek information on how companies are preparing for these challenges. This resource is essential for investors and stakeholders interested in understanding the implications of climate change on business operations and sustainability practices.

Key Points

  • Explains the significance of climate change reporting for corporations.
  • Details the financial risks associated with climate change for investors.
  • Encourages shareholder proposals for transparency on climate strategies.
  • Discusses the implications of the Paris Agreement on corporate practices.
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PRESIDENT AND FELLOWS OF HARVARD COLLEGE
CORPORATION COMMITTEE ON SHAREHOLDER RESPONSIBILITY
OFFICE OF THE GOVERNING BOARDS
(617)
495-1534
L
OEB HOUSE, 17 QUINCY STREET
C
AMBRIDGE, MA 02138
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Proxy Voting Guidelines for External Managers
Topic: Environmental Issues
Subtopic: Reporting on Climate Change
Approved: July 19, 2019
Updated: June 8, 2022
Description:
Resolutions that ask companies to report on business risks associated with climate change and
the potential impacts of these risks upon their business activities, as well as plans to address such
risks. Such resolutions may reference the goal (expressed in the Paris Agreement) of limiting
global temperature rise to well below 2 degrees Celsius above pre-industrial levels and pursuing
efforts to limit temperature rise to 1.5 degrees Celsius.
Topic background:
Recent Intergovernmental Panel on Climate Change (IPCC) reports make it clear that
anthropogenic greenhouse gas emissions are driving an increase in average global temperatures
and an associated increase in severe and damaging weather events.
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Additionally, resulting
permafrost thaw, loss of seasonal snow cover, and melting glaciers will only amplify the
problem. Shareholder proposals on climate change reporting reflect not only grave concern about
the threat climate change poses to society, but also an understanding, from an investor
perspective, that the effects of climate change, and of policies to address climate change, pose
material financial risks for unprepared companies. Conversely, shareholders may view
companies with robust climate change mitigation or adaptation strategies as positioned for
longer-term competitive advantage. Shareholder proposals regarding the business impacts and
risks of climate change describe these risks in two keys ways. “Transition risk” refers to the
business impact of policies and commercial technologies that will move the world economy
toward reduced carbon fuel use and greenhouse gas emissions. As implemented by individual
nations, policy-based goals such as those set forth in the Paris Agreement would affect supply
and demand for carbon-based energy. Commercial advances include increasingly competitive
renewable energy and energy efficient technologies with the potential to win broad acceptance in
the market. “Physical climate risk” includes the potential for increased frequency or scope of
severe weather events, such as droughts, wildfires, storms, and flooding, or ecosystem loss, and
the effect on a company’s operations, infrastructure, or supply chain.
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For more information, please see the IPCC’s Sixth Assessment Report - Climate Change 2021: The Physical
Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on
Climate Change
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Considerations for voting:
• While uncertainties surround the timing and impact of climate change on business
activity, as well as the likely form of relevant policies and regulations, the scientific
consensus about the progress of climate change makes it clear that it is in shareholders’
best interests to understand how companies view – and are planning for – the risks a
changing climate poses for their business.
• Energy companies in particular face uncertainty surrounding the timing of any shift away
from fossil fuels towards other energy sources and the impact such shifts may have on
their businesses. Shareholders have reason to take seriously the prospect of reducing
demand for carbon-emitting energy sources, to believe that it is prudent for companies to
share information on their plans to adapt to an economy with decreasing reliance on fossil
fuels, and to better understand how companies are anticipating the physical risks of an
altered climate and associated extreme weather events and other disruptions.
• We understand that shareholder interest should extend beyond the energy industry to
many other industries, given the likely impacts of climate change on energy,
infrastructure, and supply chains. For example:
o Shareholders in insurance companies may seek information on planning regarding
the cost of increased extreme weather events.
o Shareholders in food and beverage companies may seek information on planning
regarding agricultural supply chain disruptions.
o Shareholders in companies with plants and equipment in areas vulnerable to
flooding and wildfires may welcome information on plans to adapt or relocate
such assets.
• Given the broadly recognized frameworks for reporting sustainability related disclosures
such as CDP (formerly the Carbon Disclosure Project) and the Task Force on Climate-
related Financial Disclosures (TCFD), which have been shaped with input from industry
experts and investors, reasonably constructed shareholder requests on climate change risk
reporting should not pose an undue burden. In addition, reports based on such
frameworks offer shareholders the opportunity to compare reporting among companies.
• Generally, we recommend supporting proposals that ask companies to report on climate-
change-related business risks and upon plans to address those risks, and particularly
encourage support of well-crafted proposals to companies that appear to be lagging
behind their peers on climate change issues. Such proposals seem prudent and relevant to
a valid shareholder interest in fully understanding the climate risks a company faces and
its perspectives on managing them.
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• At the same time, we have tended to oppose or abstain on proposals that encroach upon
management’s discretion to conduct ordinary business by imposing highly prescriptive
requirements for policies or plans to address climate change.
• Similarly, we counsel caution with proposals that direct companies to take actions
contrary to their core business focus and strategy, such as demanding that an energy
company provide a capital distribution to compensate shareholders for assets such as oil
reserves that may, in future, become “stranded” (lose their book value).
• Understanding and considering climate-related impacts aligns with Harvard University’s
institutional efforts and the Harvard endowment’s net-zero pledge.
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Illustrative examples of votes:
1. Vote in support of well-constructed resolutions requesting that a company report on risks
posed by climate change. Examples of such resolutions might include those that request
a company to:
• Report risks and opportunities for business operations that could be materially
impacted by, or a significant contribution to, climate change.
• Provide an explanation of how the board oversees and manages climate-related risks
and opportunities.
• Report on its understanding of the implications of aligning business operations with
either a well below 2 degree or 1.5 degree Celsius scenario
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as outlined in the Paris
Agreement.
2. Vote against resolutions that direct companies to take actions contrary to their core
business focus and strategy.
Harvard offers broader general guidance on its recommended approach to considering
shareholder resolutions in “Overview of Harvard University’s Proxy Voting Guidelines for
External Managers” (follow link to download full text). When determining votes on resolutions,
we consider each resolution in light of this general guidance as well as in light of a resolution’s
specific request and contextual information about the relevant company and its approach to the
issue.
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In April 2020, the Harvard Corporation directed HMC to set the endowment on a path to achieve net-zero
greenhouse gas (GHG) emissions by 2050. The pledge can be viewed here.
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Requests for company scenario analysis have often aligned with the goal of limiting global temperate rise to well
below two degree Celsius (2°C) above pre-industrial levels, as outlined in the Paris Agreement. There are publically
available resources on climate change scenarios, for example, from the International Energy Agency (IEA), the
World Resource Institute (WRI), the Food and Agricultural Organization of the U.N.’s Modelling System for
Agricultural Impacts of Climate Change (MOSAICC) and the Intergovernmental Panel on Climate Change (IPCC).
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FAQs

What are the key themes of the Environmental Issues Reporting on Climate Change 2022?
The key themes include the necessity for corporate transparency regarding climate risks and the financial implications of climate change. It discusses how companies should disclose their strategies for mitigating climate-related risks, which is crucial for investors. The document also emphasizes the alignment with the Paris Agreement goals, advocating for companies to limit global temperature rise and adapt to changing environmental conditions. Overall, it serves as a guide for shareholders to understand the importance of climate change in business decision-making.
How does the document suggest companies should report on climate change risks?
The document suggests that companies should provide detailed reports on the risks and opportunities posed by climate change to their operations. This includes outlining how the board oversees climate-related risks and the strategies in place to manage them. It advocates for adherence to established frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), which helps standardize reporting and allows for comparability among companies. By doing so, companies can better inform shareholders and stakeholders about their climate strategies.
What types of risks are associated with climate change according to the document?
The document identifies two primary types of risks associated with climate change: transition risks and physical climate risks. Transition risks involve the impact of policies and technologies aimed at reducing carbon emissions, which can affect supply and demand for fossil fuels. Physical climate risks encompass the potential for increased severe weather events, such as storms and flooding, which can disrupt operations and supply chains. Understanding these risks is crucial for companies to develop effective strategies for adaptation and resilience.
Why is shareholder engagement important in climate change reporting?
Shareholder engagement is vital in climate change reporting as it drives companies to be more accountable for their environmental impact. By advocating for transparency and robust climate strategies, shareholders can influence corporate governance and sustainability practices. The document highlights that informed shareholders are better positioned to assess the long-term viability of their investments in the context of climate change. Engaging with companies on these issues can lead to improved risk management and competitive advantage in a changing market.

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