Toyota witnessed opposition at its June annual meeting, as some shareholders expressed unhappiness with the car giant’s climate lobbying and a lack of independence at board level.
Electric vehicles could make up almost a fifth of cars sold this year, while car manufacturers face future bans on new petrol car sales in countries such as the UK and France, according to the International Energy Agency. Yet the world’s second largest carmaker, Toyota, has given mixed signals regarding its climate transition, an approach that has angered some activists, eventually leading to a shareholder resolution at this year’s AGM.
Though Toyota has pledged to increase EV sales in February, former chief executive officer and president Akio Toyoda said last year that “the silent majority” was sceptical about an EV-only policy. The Wall Street Journal reported that he suggested electric cars should be offered alongside hydrogen-fuelled cars and hybrid vehicles.
At the company’s AGM this year, Toyoda faced the wrath of shareholders, some of whom opposed his election as chair over concerns about its governance. (Almost 85 per cent of votes cast approved his re-election, though this was down from the 96 per cent backing he received when appointed to the board in 2022.)
In March, more than 50 environmental and consumer groups sent a letter to Toyoda’s successor, Koji Sato, urging the new CEO to phase out all internal combustion engine vehicles in the US and Europe by 2030 and worldwide by 2035.
They also called on Sato to immediately end Toyota’s climate lobbying – a topic that was the basis of a shareholder resolution put forward at the June 15 AGM. It was the first shareholder resolution considered at a Toyota AGM in 18 years, according to Reuters, and the first resolution filed in Japan on climate lobbying, according to the Church of England Pensions Board.
Rare opposition
Historically, shareholder resolutions on climate have been rare in Japan. The first was submitted at Mizuho Bank’s AGM in 2020, according to non-profit ClientEarth. The request for the bank to set out how it planned to align its investments with the Paris Agreement received support from almost 34 per cent of shareholders.
Investor engagement with Japanese companies is rising, however, with the number of shareholder proposals in Japan reaching a record high of 292 last year, according to Nomura Asset Management.
The number of companies that witnessed more than 20 per cent opposition in a vote also increased last year, though this was below the 2019 peak.
Since the shareholder resolution levelled at Mizuho in 2020, more banks have become targets for shareholders over the Paris Agreement.
Legal & General Investment Management is among the shareholders of three Japanese banks – Mitsubishi, Sumitomo and Mizuho – to have backed demands for the trio to publish transition plans aligning their lending and investments with the Paris Agreement’s 1.5C target, calling for net zero emissions by 2050. The resolutions will be considered at the banks’ AGMs at the end of June.
“Shareholder proposals are just the top of the iceberg [in Japan],” according to a research note from activist investor Asset Value Investors. “In our experience, most constructive engagements stay private.”
“Although activist events are increasing,” it continued – observing that Japan is now the world’s second largest activist market – “there is a lot more proactive engagement taking place under the surface.”
Climate lobbying
At Toyota, the resolution filed by Kapitalforeningen MP Invest, Storebrand Asset Management and APG Asset Management called on the company to be more transparent about its climate-related lobbying.
The carmaker has published two reports since 2021 detailing its climate lobbying. It includes playing a part in launching a “committee on mobility” under the Japanese Business Federation, which provides a forum for discussing issues including carbon neutrality and speaking to government. Meanwhile outside of Japan, Toyota said it co-wrote a letter to the US Congress with its automotive peers backing tax credits for EVs.
The resolution, which was backed by two of the US’s largest pension funds – the California Public Employees’ Retirement System and the Office of the New York City Comptroller – and supported by the Church of England Pensions Board, said the two reports had fallen “far short of investor expectations”.
Prior to the vote, Toyota told shareholders it planned to improve the transparency around its evaluation of trade bodies, pledging to appoint a third party to review its work. It also said it would double the number of trade associations that it reviews, and increase its level of disclosure. The board urged shareholders to vote against the resolution.
However, proxy adviser ISS recommended shareholders support it, saying Toyota did not give them sufficient information to assess its lobbying activities. “Shareholders would benefit from the company disclosing information about direct, indirect, and grassroots lobbying in the various regions where it operates,” it said.
The resolution, which required two-thirds support to be successful, was ultimately rejected, having received 15 per cent of votes cast.
Reputational risk
While ISS supported the election of Toyoda as chair, fellow proxy adviser Glass Lewis encouraged shareholders to vote against his appointment. It said the carmaker does not have enough independent directors, “which raises serious concerns about its objectivity, independence and ability to perform proper oversight”, and it held Toyoda responsible for the lack of independent representation on the board.
Calpers and the Office of the New York City Comptroller were among shareholders to vote against Toyoda’s reappointment, while LGIM senior manager for sustainability and responsible investment Stephen Beer tells Sustainable Views: “The low level of director independence at Toyota is an important issue for the company, which is why LGIM voted against a number of directors at the AGM this year, including the chair.”
After the votes were counted, the co-filers for the climate lobbying resolution said they were pleased with the level of support from fellow shareholders, and observed that numerous institutional shareholders, such as Calpers and the Office of the New York City Comptroller, had publicly declared their voting positions before the AGM.
“We are engaged with Toyota because we believe the company’s lobbying activities pose a significant reputational risk, and we will continue to push the company to do even better,” said Anders Schelde, chief investment officer of AkademikerPension, one of the co-filers.
“We note significant support from other investors to our proposal and lagging support for Mr Toyoda as a chairman,” he added. “The company should take note and implement more transparency and focus on succeeding in the transition economy.”
Toyota has been contacted for comment.
Change in strategy
Under Sato, Toyota will look to reach 3.5mn in annual EV sales by 2030, however. Unveiling his management team in February, Sato pledged to prioritise EVs, saying: “We must streamline the structure of the car, and – with a [battery electric vehicle]-first mindset – we must drastically change the way we do business, from manufacturing to sales and service.”
LGIM’s Beer welcomed the new CEO’s ambitions for higher EV sales, saying: “LGIM believes that shareholders would benefit from greater transparency on how [Toyota’s] short-term electrification strategy aligns to its climate goals and how it does not expose it to long-term risks of losing EV market share.”
LGIM has also “set clear expectations” that Toyota refrains from any lobbying activity that would weaken regional policy efforts to accelerate the shift to EVs, he added.
The carmaker has acknowledged obstacles to the rollout of EVs, including regional variations in energy and industrial policies and customer needs. “Countries and regions that have inadequate supplies of clean energy may continue to face a lack of charging infrastructure for decades to come,” Toyota told shareholders ahead of its AGM.
The company has also championed the idea of “introducing sustainable vehicles practically” by giving customers a wide range of “eco-friendly” options, including hybrid vehicles, in order to bring down CO₂ emissions.
Church of England Pension Board director for climate and environment Laura Hillis tells Sustainable Views she was encouraged by Toyota’s recent announcements on EVs.
“The change in strategy they have announced seems promising – but I think that it remains to be seen whether they’re going to fully step forward and embrace the surge in demand for EVs, or whether they’re going to stay wedded to their previous strategy, which was very focused towards hybrids and hydrogen,” she says.
“I’m not holding my breath at this point because they obviously have had a bit of a mixed strategy, but I do think that the announcements they’ve made recently are really promising.”