Today at the Fairfax AGM, our shareholder proposal received about 20% support according to verbal comments made at the meeting by management. With a dual-class share structure, this amounts to more than double that number for independent shareholders, a significant signal to Fairfax to take climate risk more seriously.
Last year, the same proposal received about 18%. The company, however, refused to break that vote out by share class, unlike for its director votes, so we don’t know the exact vote share for independent shareholders.
While Fairfax has already stated that climate change represents a material financial risk to its business, this proposal requested that shareholders have sufficient transparency to understand how that risk is being measured and managed across the enterprise.
Fairfax says it is already assessing climate-related risks internally, but investors rely on disclosure to evaluate how material risks are being addressed. Internal analysis does not provide investors with decision-useful information.
For example, the commitment to holding assets for the long term invites reflection on the kinds of exposures that are being financed and underwritten over that same time horizon.
Shareholders need insights into the significant exposure Fairfax has to high emitting sectors which face transition risks set to compound over decades. Fairfax is currently the third-largest underwriter of fossil fuel projects globally. The Iran oil and gas shock has exposed the serious security vulnerabilities of fossil fuels.
There has also been discussion about timing, including whether such disclosure is premature in advance of regulatory requirements. Many investors view voluntary disclosure of material risks as part of good governance. Therefore investors already expect this disclosure, particularly when most peers have taken similar steps, some several years ago already.
The board has highlighted challenges around data availability and consistency. These are widely recognized across the financial sector. Most large financial institutions have already begun reporting financed emissions and clearly note assumptions and limitations so that their processes can improve over time. Without trying, there can be no iterative process. Beginning with an initial disclosure can help establish the systems and governance needed for more refined analysis later.
Providing this disclosure would help shareholders better understand how the company is navigating a risk that has meaningful implications for its investment portfolio and the insurance industry and which is growing exponentially over time.
