- Companies are giving greater consideration to environmental, social and governance criteria raised by stakeholders to mitigate against risk.
- The concerns of impact investors should be front and center this proxy season with an upsurge in ESG shareholder resolutions.
- Policy changes enacted by the Securities and Exchange Commission are expected to add hurdles for shareholder proposals, especially those focused on ESG issues.
The record-setting surge in shareholder proposals addressing climate change, gender parity and political spending, will continue this proxy season, signaling how these issues are major concerns to investors.
Proposals dealing with environmental and social factors will hit an all-time high for the fourth consecutive year, Nuveen said in its 2020 Proxy Season Preview. E&S proposals accounted for 55% of filings in 2019, and account for 66% of all submitted proposals so far this year, according to the investment firm.
COVID-19 has already guaranteed that this proxy season, the time of year when companies hold their annual meetings, will be like no other. Corporate leaders and shareholders will have to adapt to the virtual-meeting format as public-health concerns trump the experience of sitting together in a cavernous hall.
“The number of proposals that get substantial levels of support — the sort of support that prompts companies to change their policies and actions — is continuing to grow,” Heidi Welsh, executive director of the Sustainable Investments Institute, told Karma.
Proponents filed at least 429 resolutions dealing with ESG issues as of Feb. 21, up from 366 a year earlier, according to the Proxy Preview 2020, which Welsh co-authored. More than 300 of the 429 proposals are expected to be voted on this spring, the March 19 report said.
ESG advocates withdrew 78 proposals by mid-February, up from 71 during the same point in 2019 and 62 in 2018, usually an indication that proponents and management have reached an agreement, according to the report.
“It’s really important to remember that corporate America is not a monolith,” Welsh said. “While many companies view shareholder proposals as a pesky nuisance — particularly the largest energy companies that get the most proposals — others view ideas from shareholders and other stakeholders as important, with consideration of these ideas key to their long-term business success.”
Last year, political contributions and lobbying, followed by climate change, were the top categories in both filing and votes. The trend is projected to continue this year because of the 2020 election and growing concern about the environment. The number of proposals dealing with board and staff diversity and equity, and human rights rose in 2019 and should remain a major focus this year, according to Nuveen.
More firms have been taking ESG criteria into consideration when making decisions. The Business Roundtable introduced a Statement on the Purpose of a Corporation that was signed by 183 CEOs in August that called on companies to create value for all stakeholders, not just those who hold stock in a company. The World Economic Forum’s release of the Davos Manifesto in December, which outlined ethical principles for corporations to follow.
“Considering all stakeholders was a key concept in the Business Roundtable statement last August, and if companies don’t deliver on what they promised, in times of economic distress, their customer base may hold them to account,” Welsh said.
A group of over 5,000 shareholders working under the umbrella of the Netherlands-based group Follow This, in the last five years, have urged energy companies such as Royal Dutch Shell PLC and Exxon Mobil to set up carbon emissions reduction targets in line with the 2015 Paris Climate Accord.
Investors are increasingly worried about extreme weather patterns due to global warming and are asking companies to take actions to mitigate the impact on their investments, according to Mark van Baal, a Follow This founder.
“Institutional investors are starting to foresee that climate change will have such an impact on their billions that it needs to be stopped, “ van Baal told Karma. “So talking about disclosures is really not enough anymore.”
However, the rise in shareholder activism might soon hit a major hurdle as the Securities and Exchange Commission works to change the rules for the proposal process. The changes will make it harder for shareholders to file proxy resolutions, both initially and for reconsideration. The agency is looking to raise the stock ownership threshold for shareholder proposals from $2,000 to $25,000 of shares held at least a year. This has the potential to disenfranchise less-wealthy investors who are focused on ESG and also stifle the dialogue when new issues arise.
“I do expect that the final rule will be challenged in court,” Welsh said. “How that plays out will, I think, depend largely on when the rule is issued, and who wins the election in the fall.”
Karma’s Neanda Salvaterra contributed to this story.
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