Too ambitious? Analysis of US AGM data finds that the level of support for shareholder E&S resolutions this proxy season has so far been 'muted' 

6 minute read  08.06.2022 Kate Hilder, Siobhan Doherty

New report finds that after a record year for shareholder E&S resolutions in 2021, the level of support for these resolutions so far this year is much lower than expected perhaps reflecting the more ambitious demands being made of companies.  Our key takeaways from the report are below.

Analysis from Geogeson of the vote results on ESG shareholder proposals at Russell 3000 companies so far this year has identified that while the volume of proposals is well up on 2021, the level of support for shareholder environmental and social (E&S) proposals has so far been 'muted' compared with last proxy season.

The report is based on available annual meeting results from 1 July 2021 to 16 May 2022 for companies in the Russell 3000 Index as at 16 May 2022.  

A spike in the volume of shareholder ESG proposals

Following a record year for shareholder ESG proposals in 2021, Georgeson found that even more proposals have been filed in 2022.  

According to the report, 924 ESG shareholder proposals were submitted between 1 July 2021 and 16 May 2022 (up from  837 during the 2021 proxy season, and 754 2020).  

In particular, the report flags that the number of 'environmental' shareholder proposals increased 39% on 2021.  

An uptick in the number of 'conservative' proposals 

The report also highlights that the number of 'conservative' proposals (proposals typically critical of ESG) doubled from 26 in 2021 to 52 in 2022.  

Key themes in shareholder E&S proposals 

Environmental proposals: Consistent with 2021, Georgeson found that proposals calling for companies to set emissions reduction targets are the most common sub-category of environmental proposals (though this year most of these proposals specifically call for Scope 3 emissions reduction targets).  The report identifies two other emerging 'themes' in shareholder environmental proposals that look to be gaining prominence in 2022.  Namely: a) calls for policy alignment with the International Energy Agency’s Net Zero scenario;  and b) demands for companies to stop financing to fossil fuel projects.  

Social Proposals: The report flags an 'increased focus' in 'social' proposals on companies’ broader impact eg the external costs of misinformation at technology companies and separately proposals focusing on the public health costs of protecting vaccine technology at healthcare companies.  

More broadly, diversity, equity and inclusion is also identified in the report as a key theme in this proposal category, including demands for companies to disclose more detailed workforce diversity data (ie to provide reporting beyond EEO1 disclosure) and demands for companies to commission racial equity audits.

Interestingly, the report flags that there has been a sharp drop in the number of shareholder proposals seeking disclosure of EEO-1 reporting from 47 in 2021 to 7 in 2022.  Georgeson interprets this as an indication of the 'rapid increased prevalence of this disclosure' rather than to a decline in investor appetite for workforce data.

According to the report, shareholders have also maintained their focus on transparency around company's political lobbying/contributions with 26% of 399 'social' shareholder proposals filed in 2022 referencing political spending (up from 23% in 2021).  

The demands being made of companies are more ambitious

Looking at the substance of the demands made this year, Georgeson found that many of the proposals are more ambitious than in 2021.  For example, as flagged, where in 2021 a number of shareholder environmental proposals called on companies to adopt greenhouse gas emissions reduction targets, this year 56 of the 71 proposals referencing GHG emissions reduction strategies/targets, call for the targets set to include Scope 3 emissions. 

Separately this trend towards more ambitious and 'prescriptive' demands has also been noted by some investors.  For example, a recent memo issued by BlackRock outlining its approach to shareholder ESG proposals also identified a broad shift towards more 'prescriptive' demands (as well as signalling that BlackRock is likely to support fewer climate-related shareholder proposals this year in consequence). 

The level of support for shareholder E&S proposals has so far been 'muted' as compared with 2021

The report highlights that the level of support for the 137 E&S shareholder proposals that have gone to a vote to date so far this season (ie as at 16 May 2022) has been 'muted' compared with last year'.  For example:

  • Of the 107 'social' proposals that have so far gone to a vote in 2022 only 10 (9%) have been carried (half the number that were carried in 2021)
  • Of the 30 'environmental' proposals that have so far gone to a vote in 2022, six have been carried.  In contrast, 35% of environmental proposals that went to a vote last year were carried.

Environmental proposals

  • Scope 3 proposals:  As at 16 May 2022, of the 12 Scope 3 proposals that had gone to a vote, four were carried (Boeing, Costco, Autozone and Sysco) and eight failed to secure majority support.  
  • Proposals calling on companies to rule financing/underwriting new fossil fuel projects: As at 16 May 2022, 14 proposals of this type had been filed at 12 companies.  13 of these proposals referenced the International Energy Agency's Net Zero by 2050 scenario.  None of the seven proposals that had proceeded to a vote were carried.  

Georgson suggests that the drop in the level of support may reflect greater hesitancy (including among some institutional investors) around supporting more ambitious shareholder demands, rather than a lessening in investor focus on ESG issues per se.  The report comments:

'In our view, we see this potentially muted support less as a matter of decreasing shareholder attention on ESG matters and more a reflection of proponents’ heightened ambitions in the proposals voted upon in 2022'.

This suggestion appears to be consistent with the approach outlined in BlackRock's recent memo.  

Follow This (which filed similar Scope 3 shareholder proposals calling on major oil companies to set and disclose Paris-aligned emissions reduction targets across all Scopes this year) also flags this as a possible factor in the lower than expected level of support for its proposals this year, though the group considers that the energy crisis is likely to have been a larger factor.

High withdrawal rate for 'Scope 3' proposals 

The report found that 31 of the 56 shareholder proposals calling for Scope 3 emissions reduction targets were withdrawn ahead of the meeting.  In the case of 23 proposals, the proposal was withdrawn a commitment was made by the company/'general constructive dialogue'.  

Companies issuing a 'for recommendation'

The report flags that the trend for boards to issue a 'for' vote recommendation or to refrain from making a vote recommendation with respect to shareholder proposals has continued.  

According to the report, four shareholder proposals have so far been carried with over 80% shareholder support where management have recommended shareholders vote in favour of the proposal.  

Support for director elections and 'say on pay' remain relatively strong

  • According to the report, support for director elections at Russell 3000 companies continues to be strong averaging 95.0%, more or less in line with the average support of 94.9% for the full 2021 proxy season.  The slight increase in opposition is attributed primarily to concerns over board composition (ie lack of board diversity), lack of board oversight of ESG issues, and concerns over director overboarding.  
  • Average support for 'say on pay' resolutions is slightly down on last year – 90.02% support in 2022 vs 91% support in 2021.  

[Sources: Georgeson media release 02/06/2022; Full text report: An early look at the 2022 Proxy Season]

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