Climate change presents myriad risks to companies and their investors. But with the focus largely on rising temperatures and reducing emission levels, the social implications of climate change—particularly those that can adversely affect workers—have been relatively absent from the conversation. The ongoing strike by the United Auto Workers (“UAW”) highlights the connection between environmental and social considerations, at the same time that investors are taking a more sophisticated approach to these issues and how they interrelate to economic risks and opportunities.
Just Transition: Linking Economic, Environmental and Social Considerations
For over a decade, shareholder proposals have requested that companies provide more information on climate-related risks and that they establish challenging GHG emission reduction targets. These arguments have, for the most part, solely focused on companies’ environmental impacts. Last year a new type of proposal went to a vote, at Marathon Petroleum Corporation, requesting that it report on how it is addressing the impact of climate change strategy on key stakeholders, including but not limited to its workers and the communities it serves.
This concept is often referred to as the Just Transition: an attempt to maximize the social and economic opportunities of climate change while minimizing and managing challenges, including through effective social dialogue among impacted groups and respect for fundamental labor principles and rights. Effectively, it references the impacts of climate change and attendant actions on society and companies’ employees.
This issue has become a matter of growing interest to investors, with the Climate Action 100+ recently adding indicators on companies’ Just Transition reporting and initiatives to its Key Benchmark Indicators. Since Marathon’s 2022 meeting, an additional six companies have voted on Just Transition shareholder proposals. These were largely oil & gas and delivery companies (such as Chevron Corporation and FedEx Corporation), and to date no automobile manufacturers have faced such a proposal. However, the ongoing UAW strike, which launched just days after the Biden Administration announced a $15.5 billion automotive manufacturing package explicitly intended to support “good jobs and a just transition”, is likely to prompt investor scrutiny of how this industry is managing its response to climate change.
UAW Strike: Where the Rubber Meets the Road
Alongside disagreements over wages, benefits and job protections, the transition to electric vehicles is a major factor in the UAW strike. Increased focus on the production of EVs, which has been incentivized by the 2022 Inflation Reduction Act, allows car makers to better compete on a global basis and goes a long way in assuaging some investor concerns regarding these companies’ climate impacts and goals. However, the operational impact of pursuing these climate-related benefits could be in direct conflict with the goals of the UAW, which primarily seeks to ensure fair wages and safe and equitable working conditions for its members.
Specifically, there have been concerns that the production of EVs requires fewer employees with different skills and factories with different capabilities than gas-fueled automobiles. It has also upended the supply chain, and a boom in battery production has led to more joint ventures with non-union companies. Even where manufacturing operations are run by major automakers, new factories are often being planned in states with laws that could make organizing a union more challenging.
The UAW worries that this could lead to current union members being laid off and replaced with non-union employees, minimizing the impact that the union is able to have on the working conditions and pay of its members. Moreover, research has shown that median salary for workers at existing EV facilities is lower than that of current union members. As a result of these concerns, alongside demands for raises and enhanced benefits, the UAW is also seeking to represent employees at battery plants.
Looking Ahead: Potential for Shareholder Action
For some investors, the idea of a Just Transition may, to date, have been a somewhat theoretical concern. Many of the companies where this issue has recently been highlighted by shareholder proposals or activism may not see dramatic changes in their workforces for a number of years. However, the rapid speed of technological and regulatory changes incentivizing the transition to EVs brings the issue of a Just Transition into stark reality.
Given the level of shareholder activism on environmental and social issues in recent years, shareholders may be more closely scrutinizing how companies are managing issues related to the Just Transition. Moving forward, the topic could be raised with increasing frequency across a variety of industries, both as part of investor engagement discussions and at companies’ AGMs.