During the 2021 US proxy season, shareholders sent a clear message that management of environmental and social risks should be a top priority for companies. The 2022 US proxy season underscored this further with the submission of a record 247 environmental and social proposals, an increase of 74 percent.
As shareholders continued to evolve their approach to ESG topics, however, the average support for ESG proposals fell back to historic norms after strikingly high support in 2021. Similarly, average support decreased for environmental proposals, from 47 percent last year to just over 33 percent this year. Compared with 2021, the total number of environmental and social proposals that received majority support also decreased from 25 percent to 13 percent in 2022.
A key driver of shareholders’ decision to vote against these proposals may be attributed to their prescriptive nature, especially climate-related proposals.
In its 2022 Investment Stewardship report, BlackRock notes that ‘many more proposals were unduly constraining on management or were overly prescriptive as to information sought or timeframes’, which led many asset managers to take a more measured approach in their analysis and voting decisions. Across environmental and social proposals, a few topics stood out during this proxy season.
Climate change Climate-related proposals in 2022 focused on enhancing company reporting around greenhouse gas (GHG) emissions, climate-related risks and opportunities, climate lobbying and broader climate action plans. While these proposals’ topics are consistent with previous years, the proposals that went to a vote in 2022 were more constraining on companies. As a result, average support for climate-related reporting proposals decreased from 50 percent in 2021 to about 30 percent in 2022.
Although shareholders were more critical in their analyses and voting decisions, several climate-related proposals received more than 90 percent support. Proposals at Chevron Corporation, Boeing Company and Caterpillar, which focused on methane emission disclosures, GHG targets aligned with the Paris Agreement and reporting on a net-zero indicator, respectively, received between 91 percent and 98 percent support.
Racial equity and civil rights audits Diversity and inclusion, at both the board and workforce level, has been a growing priority for asset managers over the last several years. In 2021, shareholders pushed for companies to disclose their equal employment opportunities (EEO-1) reports; this year the focus shifted to racial equity and civil rights audits. From 2021 to 2022, the number of proposals on racial equity and justice voted on doubled, and average support increased as well.
In 2021, no proposals related to racial equity and civil rights audits received majority support, but eight proposals received between 53 percent and 64 percent support in 2022, including one at Waste Management that passed despite an ‘against’ recommendation from Glass Lewis.
Lobbying & political contributions Proposals related to lobbying and political contributions have historically made up a significant percentage of total environmental and social proposals voted on. With the sharp increase in environmental and social proposals in 2022, however, the proportion of proposals related to lobbying and political contributions decreased from about 37 percent to 23 percent. For the second year, we have seen shareholders look specifically at climate-related lobbying and alignment of political spending with the goals of the Paris Agreement.
Looking ahead As preparation for the 2023 proxy season begins, ESG has taken center stage in the US as ‘anti-ESG’ laws emerge. While the topic receives pushback from politicians, proxy voting firms and asset managers continue to evolve their policies and initiatives across priority areas like climate risk and board accountability. But the unprecedented political attention to ESG will undoubtedly impact the 2023 proxy season.
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