The 2022 Annual General Meeting (AGM) season delivered on its promise of progress, controversy and a sense that more action is needed. Investors in listed equities have once again demonstrated that they are ready to use voting to voice their ESG concerns.
The number of ESG-related resolutions filed has increased. This year, a record number of 576 resolutions were tabled, compared to 499 resolutions last year (also a record). Many of these resolutions can be found in the PRI Resolutions Database.
Shareholders have sent a clear message to boards that they will be held accountable for their actions, or lack thereof, with 38 resolutions meeting the 50% threshold at the time of writing.
While shareholder activism is moving in the right direction, the impact of the energy crisis on the transition to net zero signals a warning that we cannot take the trajectory of ESG successes for granted.
More action is needed to make serious progress on the various ESG issues – more investors need to be prepared to fight short-term narratives and challenge managerial recommendations.
Continued increase in environmental shareholder activism
Once again, the climate crisis took center stage at this season’s AGMs by proxy. Investor concerns over non-compliance with the IEA’s net zero scenario have led to a significant increase in resolutions specifically targeting net zero emissions reduction targets. Some 68 resolutions relating to emissions were tabled, more than double those tabled in 2021.
Activist shareholders saw three resolutions on reporting successful GHG emissions reductions – tabled at general meetings of Costco Wholesale, Chubb Group of Insurance and The Travelers Companies.
While that’s promising, there’s also been a lot of controversy. Influential proxy advisors ISS and Glass Lewis have recommended that Glencore and Woodside Petroleum shareholders reject the companies’ proposed climate reports.
ISS rejected Glencore’s report in response to “thermal coal activities”, while Glass Lewis challenged Woodside Petroleum’s reliance on carbon offsets to meet emissions reduction targets. Both reports were adopted, although a significant proportion of Woodside Petroleum investors – 49% – voted against the company’s board.
Elsewhere, BlackRock’s investment management division issued a bold statement saying it would vote against climate proposals that are “implicitly aimed at corporate micromanagement” and instead favor disclosures that help investors understand how a company is doing. positioned to adapt to climate-related changes. The energy crisis has also dealt a blow to aspirations for a net zero transition.
The narrative that the energy crisis trumps pressing climate concerns seems to have some influence. In its statement, BlackRock argued that short-term investment in the production of traditional fuels is necessary to enhance energy security. These concerns have led to a noticeable drop in investor support for climate proposals from Shell, BP and Equinor compared to similar proposals filed in 2021.
Increase in racial equity audits, questioning restrictions on reproductive health care
In 2022, the number of racial and civil rights audits more than tripled, becoming the second most frequently filed resolution category.
These efforts have paid off, with several submissions coming from different sectors. Early in the season, Apple shareholders successfully pushed through a proposed civil rights audit, despite lack of support from management. They argued that Apple’s treatment of workers suggested an imbalance between its public image and its actions.
Similar resolutions at Johnson & Johnson, Altria Group, Stericycle and McDonalds have all been approved. This success demonstrates that shareholder collaboration can challenge managerial recommendations, a promising step forward in the fight against social inequalities.
For the first time, investors also expressed concerns at general meetings over legislation that restricts access to reproductive health care. Shareholders of Walmart, Lowes Companies and TJX Companies have filed resolutions asking for reports on the impacts this legislation could have on their employees.
Since 2011, US state legislatures have passed more than 600 restrictive laws aimed at challenging access to abortion. Not only do these laws deprive people of their reproductive rights, they have other consequences for the workforce. The Institute for Women’s Policy Research estimates that state-level abortion restrictions keep more than 500,000 women between the ages of 15 and 44 out of the workforce each year.
Absent meaningful change from government — and given the Supreme Court’s recent decision to overturn Roe v. Wade — shareholder activism on this issue will continue to be crucial.
Shareholder lobbying and proxy access popular governance resolutions
The proposals on the different forms of lobbying remain a subject of tension between shareholders and companies. According to the PRI resolution database, lobbying was presented at 56 general meetings (11%) this year.
A resolution on disclosure of lobbying expenses filed with Netflix received 60% of the vote. Investors have expressed concern that Netflix’s lobbying activities could contradict its public stance.
Resolutions calling for the disclosure of political contributions have also been successful – those filed with Twitter and Dollar General Corporation passed with 50% and 57% of their respective votes.
Following the success of activist investor Engine No.1 in replacing three of Exxon Mobil’s directors last year, many other investors have proposed proxy access resolutions to allow them to nominate other nominees. to boards of directors.
A cost-benefit analysis undertaken by the CFA Institute said access to shareholder proxies would benefit both the market and corporate boards, “increasing US market capitalization by up to US$140 billion” .
Such arguments prompted shareholders to file resolutions with Stryker Corporation, Impinj and The Charles Schwab Corporation. Although these have not been adopted, the growing likelihood of investors taking such action at general meetings may prompt board members to improve their consideration of ESG factors in decision-making.
This year was also marked by the historic resolution on tax transparency filed at Amazon. While the resolution only gained support from 17.5% of investors, others (Microsoft, Cisco) have since been filed and more resolutions are likely in the future.
The rejection of Amazon’s request to exclude this resolution by the United States Securities Exchange Committee (SEC) was significant. Under Chairman Joe Biden, the regulator has taken a more favorable approach to shareholder engagement at general meetings, allowing more resolutions to move forward than under the previous administration. As of March 31, a total of 48 corporate challenges to shareholder resolutions have been rejected, compared to 37 in 2021.
Shareholder activism this AGM season has sent the message to companies that they will continue to be held accountable for their policies and practices. As managerial influence is challenged, responsible investors must exercise patience and persistence to advance real systemic change.
In the United States, a recent announcement from the SEC has the potential to change the future landscape of AGMs. From next year, companies could be required to disclose their GHG emissions to promote greater climate transparency. If the SEC’s proposal passes, shareholders could use the information companies must disclose to make more direct demands at general meetings, such as environmental audits or specific policy changes.
While this represents progress, not everyone liked the news. The ESG arena is starting to become increasingly politicized, with critics unhappy that ESG factors are influencing board decisions. For example, speaking in Houston, former Vice President Mike Pence argued that President Biden was “arming” the SEC to undermine fossil fuel companies.
Future presidential elections and the political composition of the legislature will continue to influence the ESG landscape in the United States and, therefore, the nature of resolutions proposed at general meetings.
Outside of the United States, there have also been examples of shareholder AGM activity. In Japan, several energy companies have been urged to step up their climate commitments, with the nine climate proposals filed garnering an average of 18% of the vote, more than double the environmental resolutions filed in 2021.
In Europe, shareholders filed resolutions covering climate disclosures and emissions reductions at Total and Standard Chartered, while J Sainsbury faced calls to become a certified employer.
Promisingly, investors are increasingly comfortable using a wider range of stewardship tools, including shareholder resolutions, to hold companies to account in all markets. . The trend must continue to ensure that we address the most pressing ESG issues and achieve positive results in the real world.
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