This year’s proxy season has already begun to register the effects of the COVID-19 pandemic, as investors gain new perspective on their priorities and companies scramble to organize virtual annual general meetings.
Despite a different tilt in the proceedings, the 2020 season could still be remembered for meaningful progress on environmental, social, and governance (ESG) issues.
ESG and Proxy Season 2020
The 2020 proxy season is on course to see continued discussion of ESG issues, as the Harvard Law School Forum on Corporate Governance suggests. Shareholders have maintained a sharp focus on climate change, with 77% of environmental proposals filed so far this year falling into this bracket. Adding to the pressure, the majority of these motions call for action rather than just disclosure.
According to As You Sow’s 2020 Proxy Preview report, proposals on emissions refer to the Paris Agreement and urge companies to outline goals for how they will limit global warming to below 2 degrees. Such proposals have already been filed this year with energy firms Chevron and ExxonMobil as well as Delta Air Lines and United Airlines.
Proxy Preview notes that gender and race remain among the top social issues under consideration, with a continued focus on pay equity. Investors are resubmitting proposals from last year in this vein to Cigna, Adobe, JP Morgan Chase, and Intel. Newer motions on this theme urge companies to report on global pay disparities.
New Challenges and Renewed Priorities
While investors’ ESG focus continues to trend upward as expected, the fallout from COVID-19 has raised unprecedented challenges for companies’ revenues, balance sheets, and liquidity. Although the impact of the pandemic will vary from sector to sector, it will affect virtually every company in some way, adding a unique dimension to other issues up for vote this year.
With many firms having already suspended dividends or share buybacks as cost-cutting and cash preservation become paramount, executive compensation is set to be a hot topic this year. While various boards have already voluntarily cut executive pay packages, proxy advisory firm Glass Lewis is warning companies against stoking the ire of shareholders by attempting to push ahead with increases in executive remuneration. According to Proxy Preview, various proposals filed in 2020 specifically call on firms to link ESG metrics to CEO compensation, again with Chevron, ExxonMobil, Delta, and United among those targeted.
As it is also an election year in the US, investors and management will likely closely watch proposals on political spending. Proxy Preview notes that 34 such proposals have been filed this year as investors increasingly clamor for better governance and transparency around corporate election spending.
With COVID-19 adding to some of the social and environmental challenges already in focus due to climate change, investors will press companies to show that they are putting sufficient weight on ESG issues while they navigate a less favorable business environment.