After years of investor unprecedented support for environmental, social and governance (ESG) petitions in companies around the world, board members are preparing for further pressure in the coming months.
Twelve record-breaking proposals on environmental issues submitted to US companies in 2021 were passed with the majority of shareholder support. according to Law firm Sullivan & Cromwell analyzed voting patterns at the annual meeting.
And the data provider Lucifer Calculated that the average level of shareholder support for all environmental and social petitions increased to a record 34% in the 12 months to July 2021. Diversity, impartiality and inclusive resolutions received an average of 43% support and nine petitions were passed.
But perhaps the most prominent example of shareholder activist this year was ExxonMobil. There, a small hedge fund investor succeeded in getting three new members to vote on the board of oil majors. The support given to such a small stakeholder by Exxon highlighted the vulnerability of the board, which is not considered to take ESG concerns seriously enough.
For environmentalists and religious groups that have traditionally submitted shareholder proposals, these successes represent a dramatic change in fate from just a few years ago. For decades, activists have struggled to win important support for their cause. The largest asset managers, BlackRock, State Street and Vanguard, rarely endorse them, allowing companies to avoid ESG concerns.
But big asset managers are no longer asleep.
Vanguard’s support for environmental and social proposals submitted to the board by shareholders jumped from 6% in the same period in 2020 to 20% from January to June this year, the company said. September.. Support for labor diversity proposals requiring companies to disclose detailed information about gender and racial makeup surged from 17% in the previous year to 50%.
Meanwhile, rival BlackRock says that Doubled support Compared to the previous year, shareholder proposals for 2020-21. It also recently announced that large institutional investors will be able to vote directly on AGM, which may increase the number of members the board has to respond to.
Investors also rebelled against big bonuses for business owners. A record number of “say-on-pay” votes (non-binding votes on executive compensation required by the 2010 Dodd-Frank Financial Regulations) opposed companies in 2021. according to ISS Corporate Solutions.
The last few months of this year are usually the time for businesses and investors to discuss shareholder concerns before the petition is filed. Now, with record support for ESG proposals, companies appear to be more accustomed to activist investors and are concerned that the proposal could lead to negative votes and reputational damage. increase. Companies that take a careless approach to investors’ ESG concerns are “dying varieties,” says one lawyer familiar with such conference room discussions that required anonymous and free speech. ..
Recently, lawyers have added that the two councils have met to discuss climate strategies and how to develop a net zero emissions program not found in greenwashing. Companies are also hiring professionals to check the voting records of asset managers to see where preemptive shareholder reassurance may be needed.
Mark Treviño, Co-Head of Corporate Governance Operations at Sullivan & Cromwell, said: “As in 2021, we expect companies to continue to prefer to negotiate the withdrawal of climate-related shareholder proposals rather than the risk of being considered anti-climate by investors and other stakeholders.” Engaging with investors before a stakeholder vote “will be the biggest problem for the 2022 season,” he suggests.
YouSow, a California-based non-profit organization that is one of the largest filers of shareholder proposals on behalf of funds and other investors, said in 2021 that five record-breaking petitions received majority support. Stated. A petition will be submitted. The purpose is to get the manager to make changes without going to the shareholder vote.
“Ultimately, we’ll help these companies mitigate risk and improve their brand,” said Andrew Behar, CEO of As You Sow. “Looking forward, the question now is how companies will implement policy and practice changes in response to these high votes, and how investors will respond if they don’t.”
Historically, large asset managers have hesitated to oppose their managers on ESG proposals. However, these investors are feeling pressure from the world’s largest pension funds to prioritize ESG concerns.
Neuberger Berman, an asset management company that oversees about $ 492 billion, Disclosure of voting method Before the vote takes place, some shareholder proposals. Most asset managers do not disclose their votes until then. However, Neuberger’s pre-voting disclosure, which began in 2020, aims to facilitate the development of environmental and social issues, the company said.
Katelyn McSherry, Director of Investment Stewardship at Newberger Berman, said: She added that the company is actively in contact with the company to prevent potential investor dissatisfaction. “I see it escalate this fall,” she says.
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