Danielle Fugere, president and chief counsel of shareholder advocacy group As You Sow, talks to Ben Maiden about a record year for ESG investor proposals and trends in engagement with companies
What have been some of As You Sow’s priorities for the 2022 proxy season? We continue to work on climate [change] as one of the most important issues facing investors and people generally. We are focusing on ocean plastics and petrochemical risk – those two go together in the sense that oil and gas companies are becoming more reliant on producing plastics as the world transitions away from fossil fuels at the same time as the world moves away from single-use plastics.
We are also working on diversity and social justice. We’re looking to companies not just to say they are doing these things [to improve diversity and social justice] but also to demonstrate how they are doing that and how successful their programs are, if they already have them.
We believe that the more information there is out there, the less risk there is for investors and companies
Overall, it’s been a record year in terms of the number of ESG-related shareholder proposals filed. Is it also a record year for As You Sow? Yes. We are filing more proposals this year because we have added a team to work on our say-on-climate initiative. It’s in the same vein as what is happening with say on climate in Europe, but it’s focused differently here. In the US we are asking companies to set net-zero targets in line with the [Climate Action 100+] benchmark and to set interim targets to measure and disclose their emissions – essentially, to get on with the task of reducing their climate impact and creating plans and targets.
We did a few of those proposals last year but many more this year, and it’s been quite a successful initiative. When we speak with companies, for the most part they have been looking at what they’re going to do on climate and in many cases the companies have said that… our knocking on the door made it occur more quickly. So far, the majority of those companies have agreed to set targets but it depends where they’re at.
Last year saw the emergence of several shareholder proposals asking companies to conduct racial equity audits. Has that influenced your work on diversity, equity and inclusion (DE&I) matters? The focus on social justice was prompted by what had happened here in the US – the killing of George Floyd and the big protest movement that followed – and many groups were focusing on those issues. We did some social justice work last year and have continued that work.
We’ve had a social justice scorecard for the past two or three years. We continue to work with companies, especially those that say they have social justice programs to ensure that they actually do, as well as with laggard companies that are not working yet to promote social justice and DE&I within their organization.
A big potential change for this proxy season was the SEC’s guidance in late 2021 about how it decides whether to grant companies relief to exclude shareholder proposals. The expectation was that its revised approach would lead to more ESG proposals ending up going to votes at AGMs. Is that what you’ve seen so far? Yes, it has had an impact. What the SEC’s division of corporation finance did was in essence move back to rule interpretations that had been in place before the Trump administration. What we saw with guidance under the Trump administration was a dramatic narrowing of the ability to bring shareholder proposals because they were found to be ‘substantially implemented’ if you were too broad in your description of the issue. Then if you tightened up the description you found yourself in ‘micro-management’ territory.
There was almost no way to craft a proposal that wouldn’t get caught on one or the other of those shoals. The new guidance took us back to a reasonable approach to shareholder proposals and allowed us to continue to raise important issues with companies – as we should be able to and as had always been the case.
We feel the messages are getting through even if we don’t speak to directors or CEOs
Anecdotally at least, it seems many shareholder proposals have been withdrawn this year, presumably as a result of investors reaching an agreement with companies. Are companies more prepared to engage on ESG proposals and are you seeing any differences in how IR and governance teams approach engagement? I think there are a couple of drivers of withdrawals. Companies are becoming more comfortable with ESG. They are starting to understand that investors care about it, and more and more studies are demonstrating that companies that are concerned about ESG issues are more likely to have higher value across time.
And then there is the fact that more companies understand that climate change is a risk to them. It creates economic harm and more studies are demonstrating that we will lose GDP as a result of the harms associated with climate: from not being able to grow crops to not being able to work in extreme heat, or a lack of water. So I think companies are more inclined to be moving in the direction of tackling climate change, setting goals and making plans. That’s part of the increased number of agreements over shareholder proposals, saying, Ok yes, we knew we had to do this, we will go ahead and move forward.
I would also say this is a result of seeing higher votes in favor of shareholder proposals in the US, and many majority votes on environmental and social issues. I think the ExxonMobil board change last year was also a signal.
When you have talks with companies about a proposal, who do you typically engage with? We will talk to whoever is responsible for the particular issue area. It may be the environmental team, it may be the social governance team; IR is usually there, sometimes corporate secretaries are there and sometimes legal is there. We don’t necessarily speak with directors as often as we might want to. It’s relatively rare to speak to CEOs but we feel the messages are getting through even if we don’t speak to directors or CEOs.
Rather than getting shareholder proposals withdrawn, a handful of companies have opted to keep them on the proxy statement while urging shareholders to vote for them. Do you see advantages to that approach either from your perspective or the company’s? This is relatively new. Sometimes I think companies are inclined to move in the direction of the proposal and can’t quite commit to a timeline but they support the action and then, after getting a high yes vote, set targets. It’s a welcome and reasonable response. It gives the company authority to take action if 90 percent of their shareholders support that. It’s a win-win.
As You Sow and other investor groups welcomed the SEC’s climate risk disclosure proposal. It will take a while before any changes come into effect, but does it have any influence over engagement with companies in the meantime? Frankly, it was having an influence even before it came out – everybody knew the SEC would be coming out with a climate disclosure rule – and I think it will continue to drive change at companies. It was a compromise and there are certainly areas we would like strengthened but for the most part I think it’s something shareholders and firms can live with.
We believe that the more information there is out there, the less risk there is for investors and companies. It’s going to drive companies to look at risk and we anticipate that, as that happens, more and more will set targets and begin moving toward action, although the SEC measure would not require firms to take any specific action with regard to targets.
Ben Maiden is editor-at-large of IR Magazine sister publication Corporate Secretary
