Extract from ABC News
Whether you've owned shares for a while or are just dipping your toes into the stock market for the first time, you will be notified when a company you invest in sets a date for its annual general meeting.
Before you discard the notice, it's worth considering this — owning a share in a company entitles you to a vote on issues raised in the meeting.
There's a growing trend of shareholders big and small using these votes to call for action on climate change, particularly from some of Australia's biggest carbon emitters.
In fact, some people are buying shares purely to support resolutions put forward by climate activists, or put questions to companies on their emissions reduction plans.
Here's your guide to how it all works.
What is an annual general meeting?
An annual general meeting (AGM) is pretty much what it sounds like — a yearly meeting that's open for all shareholders to attend.
Holding an AGM is required by law. Under the Corporations Act, public companies must hold an AGM at least once every calendar year.
It needs to be held within five months after the end of the company's financial year.
As most ASX-listed companies report their results based on the financial year ending on June 30, that means many annual general meetings are held in October and November.
The meeting must be accessible to shareholders in a company — so it should be held at a reasonable time and place, for example, during business hours in a central location in a city where the company is based.
But the pandemic forced AGMs online, meaning many this year will be virtual meetings.
You own some shares in a company — now what?
If you own shares, you're entitled to attend the company's AGM, ask questions and vote on resolutions at the meeting.
Votes are routinely held on the election of board directors and how executives are paid.
When a poll is taken at the AGM, investors have one vote for every share they own.
That of course means that an individual shareholder who owns a small number of shares has less sway over the outcome than the major institutional investors, like managed funds or superannuation funds.
It's not all about voting though, it's also a chance to ask questions and generate discussion.
The Australian Shareholders' Association's Fiona Balzer says AGMs are really meetings for individual shareholders — as the big funds usually don't attend and have plenty of other opportunities to meet with the companies directly.
And even though your handful of shares might not hold much influence on their own, there's power in numbers.
"While the big investors might hold more shares … if there's some disagreement about voting items, retail shareholders [collectively] can be the ones that pushed for a for or against vote," Ms Balzer says.
How has climate action featured at AGMs?
Given an AGM is one of the few opportunities for the public to get face-to-face with company directors and executives, protestors gathering outside meetings has been a common sight for years.
But there are also ways for shareholders to send a message to companies inside a meeting.
Shareholders can propose their own resolution to be voted on — to get a resolution up, it needs to come from investors holding at least 5 per cent of the votes that can be cast, or at least 100 shareholders.
The Australian Centre for Corporate Responsibility holds shares in Australian listed companies and other shareholders also allocate it their votes, to hold companies accountable on environmental and social issues.
"Shareholder resolutions I think are becoming a preferred tactic and strategy of ours but also of institutional capital in trying to transform companies," ACCR executive director Brynn O'Brien says.
Investor Pam O'Connor regularly supports shareholder resolutions on issues from climate action to modern slavery.
She has purchased small holdings of $500 in companies ACCR wants to target, in order to be one of the 100 shareholders backing a resolution.
What's the outcome of shareholder resolutions?
If shareholder resolutions get significant support, it sends a clear message to a company about where shareholders stand.
In late September, there was what Ms O'Brien calls, "a watershed moment in Australian corporate history".
ACCR raised a shareholder resolution calling on AGL — which plans to split into two entities, one of which will house its fossil fuel assets — to set targets aligned with the Paris Climate Accords.
Fifty-five per cent of AGL shareholders backed the resolution, which the ACCR says is the largest contested resolution so far in Australia.
While the AGL vote stands out due to a majority of shareholders voting in favour, the head of corporate governance at advisory firm Morrow Sodali, Jana Jevcakova, says things have been moving in that direction for a few years.
"Three or four years ago, the maximum level of support would be around 10 to 13 per cent. Nowadays, anywhere between 20 to 40 per cent is becoming the norm," she says.
However, most company constitutions mean boards aren't actually obliged to put shareholder resolutions forward for a vote in the first place.
Therefore, shareholder resolutions on an issue like climate action are usually accompanied by a separate resolution asking companies to amend their constitution, which requires 75 per cent support to succeed.
"This actually isn't happening in Australia, constitution amendment resolutions are not getting significant levels of support, the largest one we've seen was 13 per cent," Ms Jevcakova says.
Ms Jevcakova's clients include some of Australia's biggest companies and she says they routinely put shareholder resolutions forward for a vote on a voluntary basis.
And the results can be very influential, despite not binding companies to act.
"What we're typically seeing on the back of quite significant support for these resolutions is companies improving the disclosure and really looking into setting certain targets around climate," Ms Jevcakova agrees.
Why are climate action votes getting more support?
As the rising support for shareholder resolutions on climate shows, climate action has moved from a fringe issue to a mainstream issue for investors.
And like many things, it comes down to the money.
Retail shareholders occupy a spectrum from those wanting immediate climate action to those sceptical of the science.
But Fiona Balzer sees investors now worried about near-term financial impacts, regardless of their views.
A lack of a clear plan to deal with climate risks can make it harder for companies to access funds and increase the costs involved, as Treasurer Josh Frydenberg recently acknowledged.
"Finally, in 2021, we're coming to a point where there are actual financial risks — it may be that it is difficult for [a] dirty coal mine, for example, to get cheap funding anywhere," Ms Balzer says.
"But even companies that are, say, in the technological space, where power and travel is a large part of their climate impact, they need to be able to articulate to shareholders and future providers of debt how they are going to manage the future."
Corporate advisory Morrow Sodali is also seeing growing concern among institutional investors.
Its annual survey has ranked climate change as the number one topic investors seek to engage with companies on, for the second year running.
"Investors are suddenly looking into how a company's managing climate change risk and other environmental risks, and they actually start making investment or divestment decisions based on how this is managed," Ms Jevcakova says.
What if you're not sure how to vote or can't attend?
If you can't attend a meeting, either in person or virtually, you can allocate your vote to someone else.
This is called appointing a proxy and involves filling out a form and nominating someone or some organisation to vote on your behalf.
If you own shares in many companies and don't have time to get across the detail of the resolutions to be voted on at their AGM, you can also ask the proxy to decide how to vote on your behalf.
For example, the Australian Shareholders' Association asks retail shareholders for their proxies.
It publishes its voting intentions ahead of the dozens of AGMs its representatives attend each year and asks questions on their behalf.
The big institutional investors use proxy advisory firms, which conduct research and engage with companies prior to AGMs, and provide voting recommendations.
But these voting recommendations aren't always followed by investors, Ms Jevcakova says, meaning the support of proxy advisors doesn't necessarily guarantee an outcome for companies come AGM day.
"We have had situations where none of the proxy advisors in Australia supported resolutions related to climate change yet these resolutions received over 20 per cent support," she explains.
Should board directors be paying attention to climate risks?
On the other side of the auditorium, or the computer screen, from the shareholders are the company directors, who make up the board.
The stakes can be high for directors at AGMs, with shareholders able to vote on their reelection or remuneration.
Brynn O'Brien expects attitudes to climate risks to be of increasing importance when activists and investors decided whether to support director elections.
"We will see director accountability, so the positions of directors on corporate boards where those boards are not climate competent … those positions will be up for grabs," she says.
Under Australian law, company directors have legal duties to act with reasonable care and diligence, which includes considering foreseeable risks.
"It's absolutely relevant to the role of a director to stare into climate change and make a choice about how you're going to proceed," Australian Institute of Company Directors chief executive Angus Armour says.
While Mr Armour has observed individual shareholders being vocal on climate for a long period, he says institutional investors are now putting "the weight of capital" behind the issue.
"What we often hear from investors is … if you're not considering climate change to be a risk to your company, what else are you not considering as a director?" Morrow Sodali's Jana Jevcakova says.
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