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A new wave of environmentalist shareholder activism?

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This article was written by Greg Golding and Miriam Kleiner.

Following the decision of the Federal Court in 2016 that two of the three resolutions the Australian Centre for Corporate Responsibility (ACCR) requisitioned to be considered at Commonwealth Bank of Australia's AGM in 2015 could not properly be put before the CBA AGM, the ACCR and other groups appear to be changing their approaches for the 2017 AGM season.

So far, CBA, Woolworths Limited, BHP Billiton Limited, Oil Search Limited, Origin Energy Limited, Santos Limited and Downer EDI Limited have been served with requisitions in relation to their 2017 AGMs.  The movers of these requisitions have been a mix of the following interest groups – ACCR, Market Forces and the Galilee Blockade.

The requisitions follow the same formulation with companies receiving either one or a mix of the following types of resolutions:

  • a resolution to amend the constitution to insert an express right for members at a general meeting to pass an advisory ordinary resolution expressing an opinion or requesting information about the way in which a power of the company vested in the directors has been or should be exercised ("Opinion Requisition"); 

  • a resolution seeking to insert a requirement into the constitution that, in exercising their powers, directors ensure that "the business of the company is managed in a manner consistent with the objective of holding global warming to below two degrees Celsius above preindustrial levels" ("Duty Requisition"); and/or  

  • a resolution requesting further information/actions in relation to a company's due diligence process, a company's position on energy/climate change/human rights and/or a company's membership of a certain industry body ("Information Requisition"). 

Clearly these interest groups have taken account of the Federal Court's decision in 2016 as none of the resolutions proposed so far this year have the same flaw that two of the three ACCR CBA resolutions had in 2015 – that is, the resolutions do not seek to direct the directors to exercise their powers in a particular way.
In any event, the question arises, are the companies who received these requisitions required to place them before the AGM?

It is arguable that, whilst companies who receive the Opinion Requisition or the Duty Requestion are required to put those resolutions before the AGM, companies who receive the Information Requisition are not required to put that resolution before the AGM at all.  This is because, in relation to companies who receive an Opinion Requisition and an Information Requisition, it is in no way certain that the resolution seeking the amendment to the constitution will pass.  If the Opinion Requisition does not pass, the Information Requisition does not need to be put before the AGM (because the power to place the Information Requisition before the AGM relies on the constitution being amended).  A number of companies have taken a similar approach to this by framing their notices of meeting such that if the resolution relating to the Opinion Requisition is not passed, the resolution relating to the Information Requisition will not be put before the AGM.  

Companies who only receive the Information Requisition or who receive the Duty Requisition and the Information Requisition are not required to put the Information Requisition to the meeting.  This is because it is not a valid resolution without an Opinion Requisition first being passed.  Despite this, most companies have placed all the requisitions received on their meeting papers (regardless of whether or not they have received an Opinion Requisition) presumably because it is perceived to be better to have these matters debated at the meeting rather than engage in a long debate about whether the requisition should be placed on the meeting papers at all.

In relation to the Duty Requisition, whilst we believe that a constitution is capable of being amended in the manner set out in the requisition, we query whether there is a practical way for directors to comply with the content – this is something shareholders will need to take account of when considering their vote.  

The Duty Requisition also raises broader questions about the duties of directors – for example, what would happen if the resolution relating to a Duty Requisition was passed and then an investment opportunity in fossil fuels arose which would be highly profitable for shareholders but would mean that the business of the company is not managed in a manner consistent with the objective of holding global warming to below two degrees Celsius above preindustrial levels? What should the directors do? Is this becoming a way of increasing the scope of directors' duties so that directors will eventually owe duties to "society" rather than to the company as whole?  It is worth pointing out that some commentators have noted that considering climate change as part of directors' duties (in particular, the duty to act in the best interests of the company and in good faith) is not an extension of the duties – rather it is a further example of a matter which directors should consider when discharging their duties in the same way directors consider other matters which may impact the company's business.

So far, in Australia, these requisitions do not appear to be supported by shareholders.  For example, the resolution relating to the Opinion Requisition placed on Santos Limited's meeting papers failed to pass with only 6.97% of shares being voted for the resolution.  However, in the USA, we are seeing resolutions like this being supported by a large number of shareholders, including large institutional investors such as Black Rock and Vanguard.  In 2017, this type of resolution was passed at the general meetings of Exxon Mobil, Occidental and PPL Corporation.  

It is fair to say that Australian companies should not assume that these types of resolutions will not gain traction in Australia.  In fact, it is likely that these kinds of resolutions will increase in Australia and Australian boards will need to be prepared to respond in kind. 
 


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