Say-on-climate votes allow shareholders to approve corporate climate strategies and targets, while say-on-pay votes authorize executive compensation. Say-on-climate is non-binding guidance on climate governance; say-on-pay addresses remuneration alignment. Both are stewardship tools, but target different fiduciary priorities and disclosure obligations.
Say-on-climate votes allow shareholders to approve corporate climate strategies and targets, while say-on-pay votes authorize executive compensation. Say-on-climate is non-binding guidance on climate governance; say-on-pay addresses remuneration alignment. Both are stewardship tools, but target different fiduciary priorities and disclosure obligations.
Institutional investors face an expanding governance landscape. Over the past five years, two shareholder mechanisms have gained prominence: say-on-climate votes and the now-established say-on-pay framework. While say-on-pay has operated for over a decade in Anglo-American markets, say-on-climate remains nascent, contested, and asymmetrically deployed across geographies. Understanding their distinct purposes, legal standing, and strategic implications is essential for asset owners evaluating long-term capital allocation and stewardship effectiveness.
This article examines how these mechanisms operate, their relationship to fiduciary duty, and their practical application within institutional stewardship mandates.
What Is Say-on-Climate and When Did It Emerge?
Say-on-climate resolutions are shareholder votes requesting board approval of a company's climate strategy, emissions reduction targets, and climate risk governance. Unlike regulatory mandates, say-on-climate votes operate as advisory shareholder proposals, typically non-binding, that pressure boards to formalize and disclose climate objectives.
The practice emerged formally in 2021. The Interfaith Center on Corporate Responsibility, representing faith-based asset owners, filed say-on-climate proposals at Exxon Mobil and Chevron. At Exxon's 2021 annual meeting, the say-on-climate proposal secured 51.4% support despite management opposition, marking a watershed moment in climate governance. By 2023, say-on-climate proposals appeared at approximately 300 publicly listed companies globally, with significant concentrations in energy, utilities, and financials.
The Principles for Responsible Investment (PRI), which represents $49.3 trillion in AUM as of 2024, documented that say-on-climate voting aligned with signatory expectations that climate risk is material financial risk. However, adoption remains geographically uneven: robust in North America and parts of Northern Europe; minimal in Asia-Pacific and emerging markets.
How Does Say-on-Pay Differ in Legal Standing and Implementation?
Say-on-pay votes have a longer institutional history. The practice emerged in Switzerland in 1998 and became mandatory or established in the United States (non-binding under the Dodd-Frank Act of 2010), the United Kingdom (binding under the Companies Act 2006 as amended), and Australia (Corporations Act 2001).
Say-on-pay operates as an annual shareholder authorization of executive remuneration reports and, in binding jurisdictions, approval of compensation policy. Its scope is narrower than say-on-climate: it addresses whether compensation levels, structures, and performance metrics align with shareholder interests and company performance. Rejection of a say-on-pay vote can trigger mandatory board action (in binding regimes) or reputational pressure (in advisory regimes).
Key differences:
Legal Binding Status: Say-on-pay is binding in the UK, Australia, and some European jurisdictions; advisory in the US. Say-on-climate is non-binding globally.
Scope of Governance: Say-on-pay directly addresses executive incentive alignment. Say-on-climate addresses strategic risk governance and long-term capital allocation frameworks.
Disclosure Requirements: Say-on-pay requires standardized compensation disclosure via audited remuneration reports. Say-on-climate relies on nascent climate disclosure standards (TCFD, CSRD, SEC climate rule proposals) with inconsistent adoption.
Historical Precedent: Say-on-pay has 15+ years of institutional practice and acceptance; say-on-climate is 3–4 years into implementation with ongoing legitimacy contestation.
Why Do Asset Owners Distinguish Between the Two Mechanisms?
The distinction reflects different fiduciary risk frameworks. Under fiduciary duty vs duty of care principles, pension funds and endowments must protect beneficiary interests by identifying and mitigating material financial risks.
Say-on-pay governance addresses agency risk: the principal-agent problem inherent in delegated management. If executive compensation is misaligned with long-term value creation, executives face incentives to extract short-term returns at the expense of beneficiary capital. This is an established fiduciary concern with decades of regulatory attention.
Say-on-climate governance addresses systemic and transition risk: the threat that climate change and policy responses create stranded assets, regulatory disruption, or credit events affecting portfolio values. This is a newer fiduciary concern. Leading asset owners—including the Norwegian Government Pension Fund Global ($1.34 trillion AUM), CalPERS ($469 billion AUM), and the Ontario Teachers' Pension Plan ($231 billion AUM as of 2023)—have integrated climate materiality into fiduciary mandates, but legal frameworks remain unsettled.
Regulatory bodies differ in their stance. The UK Financial Reporting Council (FRC) treats climate governance as integral to board effectiveness. Canada's pension regulatory framework does not explicitly mandate say-on-climate voting, though major funds like CPP Investments vs OTPP vs OMERS: Canada's Pension Giants Compared have integrated climate stewardship voluntarily.
How Do Say-on-Climate Votes Perform in Practice?
Say-on-climate voting shows significant heterogeneity in outcomes. The Harvard Law School Forum on Corporate Governance (2023) analyzed 150+ say-on-climate votes and reported approval rates ranging from 60% to 95%, with highest support at European companies and lower support at US energy majors.
Notable results include:
Acceptance Cases: BP (2023) achieved 81% support for climate strategy; Shell (2022) achieved 90% support after revising climate targets. These companies had pre-negotiated board-shareholder dialogue and aligned on emissions reduction timelines.
Rejection Cases: Eni (2023) saw a say-on-climate vote reach only 44% support due to shareholder concerns that the company's Paris alignment claims overstated actual emissions commitments. This forced board recalibration of climate disclosure.
Mixed Outcomes: Equinor (2023) achieved 74% support but faced ongoing shareholder criticism that renewable energy targets remained subordinate to oil production expansion, indicating that say-on-climate votes can succeed while still signaling investor dissatisfaction.
Asset owners report that say-on-climate voting effectiveness depends on:
- Pre-vote Engagement: Institutional investors who conduct multi-quarter dialogue before the shareholder meeting see higher alignment and better post-vote compliance. Contrast this with shareholder engagement vs divestment strategies, where engagement precedes voting rather than replacing it.
- Alignment with Science-Based Targets: Say-on-climate votes are more likely to succeed when companies adopt third-party validated targets (Science-Based Targets initiative, Net Zero Asset Managers Initiative). Vague or internally derived targets face higher rejection rates.
- Transparency of Transition Plans: Companies disclosing detailed capex allocation, supply chain decarbonization roadmaps, and transition finance mechanisms see stronger voting support. Regulatory frameworks like the EU Corporate Sustainability Reporting Directive (CSRD) are driving standardization of this transparency.
What Is the Relationship Between Say-on-Climate and Say-on-Pay Governance?
Increasingly, institutional investors and boards are linking the two mechanisms through executive compensation incentive design.
Some corporations now embed climate KPIs into short-term and long-term incentive plans. Examples include:
- Deutsche Börse: CEO bonus tied to 5% of weighting on ESG targets, including emissions reduction.
- Repsol: 10% of executive bonus pool contingent on achievement of specific methane reduction and renewable capacity targets.
- HSBC: Senior executive variable compensation linked to climate risk governance metrics.
This linkage creates a structural bridge: say-on-pay votes can now evaluate whether compensation incentives properly align with climate risk management. If a board proposes remuneration that ignores climate transition risks, asset owners can reject say-on-pay on the grounds that it lacks prudent fiduciary alignment.
Asset owners report that this convergence reflects their understanding that long-term fiduciary duty requires consistency between risk governance (say-on-climate) and incentive alignment (say-on-pay). However, critics argue that this approach instrumentalizes say-on-pay, transforming it from a mechanism for auditing compensation fairness into a proxy for enforcing climate policy preferences.
Do Legal and Regulatory Frameworks Distinguish the Two Votes?
Yes, significantly. The distinction reflects different jurisdictional approaches to shareholder rights and corporate governance.
United Kingdom: The FCA and FRC explicitly recognize say-on-climate as part of broader governance expectations. The 2022 FRC Corporate Governance Code does not mandate say-on-climate votes, but expects boards to address climate risk governance and disclose it transparently. Say-on-pay is binding under the Companies Act. Asset managers are required to disclose voting records for both.
European Union: The CSRD (Corporate Sustainability Reporting Directive), effective 2024–2025, requires detailed climate disclosures that inform say-on-climate voting, though the directive does not mandate the votes themselves. Say-on-pay remains binding in most EU jurisdictions. The directive creates regulatory pressure for climate governance transparency that indirectly supports say-on-climate voting.
United States: Say-on-pay is advisory under Dodd-Frank; say-on-climate has no federal mandate. The SEC's proposed climate disclosure rule (as of 2024) would require Scope 1 and 2 emissions disclosure and climate risk governance reporting, but does not address say-on-climate voting. Asset owners rely on shareholder proposal rules to file say-on-climate resolutions, which are evaluated on a case-by-case basis by the SEC staff.
Canada: Neither say-on-pay nor say-on-climate voting is legally mandated at the federal level. However, the Ontario Teachers' Pension Plan ($231 billion AUM as of 2023), Canadian Pension Plan Investments ($503 billion AUM as of 2023), and OMERS ($67 billion AUM) have adopted stewardship policies that include climate governance voting. The distinction reflects voluntary alignment with international stewardship codes rather than regulatory requirement.
How Do Institutional Investors Prioritize Between Say-on-Climate and Say-on-Pay Votes?
Asset owners deploy different engagement strategies based on portfolio context and fiduciary mandate.
Large-Cap Energy Transition: For companies in energy, utilities, and materials, say-on-climate voting often takes priority. CalPERS, the Norwegian Government Pension Fund Global, and the UK's Local Government Pension Scheme Collective Investment Vehicle have signaled that climate risk governance is material to valuation and fiduciary duty. Say-on-pay votes at these companies are evaluated secondarily, conditional on whether compensation structures incentivize transition.
Diversified Financials and Industrials: For banks, insurers, and manufacturers, say-on-pay voting retains priority. Asset managers argue that executive compensation alignment directly affects capital discipline and return on equity. Say-on-climate votes are evaluated concurrently but do not override say-on-pay concerns.
Emerging Market and Developing Asia: Fewer asset owners file say-on-climate proposals due to weaker shareholder rights frameworks and limited investor coalitions. Say-on-pay voting is more established but faces enforcement challenges where binding votes do not exist.
The Asset owner vs asset manager distinction also matters. Asset managers (who hold portfolio companies on behalf of pension funds and endowments) have greater flexibility to coordinate voting across large shareholdings. Large pension funds sometimes vote differently on say-on-climate and say-on-pay due to internal policy divergence between investment and stewardship divisions.
What Are the Fiduciary Implications for Long-Term Allocators?
For institutional investors with 20+ year time horizons, the two voting mechanisms address complementary fiduciary risks.
Say-on-pay voting protects against agency risk and misaligned incentive structures—a fiduciary duty with established legal precedent across most jurisdictions. Rejection of poorly designed compensation packages is a defensible exercise of shareholder rights.
Say-on-climate voting protects against climate transition and stranded asset risk—a fiduciary duty with emerging legal recognition but contested interpretation. Asset owners increasingly argue that ignoring climate risk violates prudent fiduciary standards; courts have yet to definitively rule on this in most jurisdictions.