ESG Investing

Prominent ESG Issues Emerge in Proxy Season 2022

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With a portion of the clouds looming over proxy season 2021 cleared away, proxy season 2022 has been notably robust on the environmental, social, and governance (ESG) front.

According to the Proxy Preview 2022 report compiled by As You Sow, the Sustainable Investments Institute, and Proxy Impact, shareholders filed 529 resolutions on ESG matters in early 2022. This marks a 20% jump from 2021 levels. Of this year’s total, 21%—the largest slice of the shareholder proposals—addressed climate change issues; 19% tackled corporate political influence; and 15% targeted human rights, including racial justice resolutions.

Perhaps just as important as the rise in submissions was the decreased likelihood of a proposal being omitted by the Securities and Exchange Commission (SEC) in response to a company request. Although the agency approved sharp restrictions on shareholder proposals in early 2021, the SEC changed course last November and nixed some of the tactics companies could use to dismiss a shareholder resolution.

3 Leading Proxy Themes

Aside from the SEC’s change of course—which coincided with the leadership change in the White House—activist shareholders rallied around a few central themes.

1. Clarity on Carbon

According to Proxy Preview 2022, the majority of this year’s climate change proposals zeroed in on greenhouse gas (GHG) emissions, urging companies in a variety of industries to account for such emissions from their operations through their supply chains. As many of the resolutions were submitted prior to the SEC’s proposed new regulations in March around GHG disclosure, the shareholder proposals could see a mixed response.

2. Broadening Lobbying Scrutiny

Proxy Preview 2022 describes how this year’s shareholder proposals increasingly sought to push lobbying disclosures, which traditionally fall within good governance, into the social realm by calling on companies to detail specific issues they back. Other proposals also requested disclosure of how political donations align with a corporation’s statements regarding political and social matters. Analysis of early results found that the deeper disclosure proposals received limited support, but the newer concept of a third-party check seemed to be gaining some traction.

3. Moving DEI to the Fore

After securing a foothold in the shareholder resolution landscape in 2021, diversity, equity, and inclusion (DEI) proposals increased more than threefold in proxy season 2022. Consisting largely of demands for third-party audits into civil rights or racial equity performance, the 40 resolutions moved beyond the financial services industry focus of a year earlier and into consumer-related and technology firms. By early June, eight such proposals had already passed at companies ranging as widely as McDonald’s, Home Depot, and Apple.

The success of any shareholder resolution often hinges largely on supportive votes from the market’s biggest investors.

Shifting Perspectives and Actions

The success of any shareholder resolution often hinges largely on supportive votes from the market’s biggest investors: investment companies, pension funds, and endowments. Yet, sentiment among such entities on ESG proposals can vary from year to year.

A recent illustration of this comes from BlackRock, the world’s largest asset manager: after supporting numerous environmental proposals in the past, it said this year that the prevalence of “prescriptive” resolutions has prompted it to renew its focus on its “clients’ long-term financial interests,” which would likely reduce its number of supportive votes.

Conversely, the 11th largest pension fund in the world, the California State Teachers’ Retirement System, said it would back shareholder resolutions that target carbon emissions and vote against retaining directors who lagged on diversity and climate change initiatives.

Both ends of the spectrum reveal that the ground is still shifting in ESG, sometimes simultaneously in different directions. This highlights the power of investor engagement via shareholder proposals and other initiatives to keep the ship on course and moving forward.

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