As company heads and investors prepare for annual board meetings and proxy votes, experts say there are early indications that support for environmental, social and governance shareholder proposals continues to fall.
550 proposals have been filed to company boards as of March 12, with an increasing focus on artificial intelligence and biodiversity, Sustainable Investments Institute Executive Director Heidi Welsh said Thursday in a webinar previewing proxy season. Welsh co-authored the 20th annual Proxy Preview released the same day by shareholder advocacy groups As You Sow, Proxy Impact and the Sustainable Investments Institute.
“Shareholder advocacy and sustainable investing is resilient and growing as companies and investors continue to assess and address ESG risk as part of fundamental business practices and to fulfill their fiduciary duty,” As You Sow CEO Andrew Behar said at the webinar. “As the world changes and material risks shift, shareholders are helping the companies they own to optimize supply chains, employee benefits and corporate culture.”
Fewer withdrawals have taken place than in past years — which typically happen when a company agrees to dialogue or take action on a topic prior to a vote — and more proposals are expected to receive votes this year, according to webinar panelists. Welsh said she expects the number of ESG proposals that receive votes this cycle will meet or exceed records.
However, support for ESG proposals, which has fallen the past two years as major asset managers have supported fewer, is on track to keep dropping. Welsh said even excluding anti-ESG proposals, which have received negligible support, average support for ESG-resolutions has declined by a third since its high in 2021. After pro-ESG proposals reached a record-high average support of 33.3% in 2021, they only received an average of 21.5% support in 2023, according to the report.
Welsh attributed the drop, in part, to legal threats to investment managers, shifts in proposal content, high energy prices and uncertainty about the recently finalized climate disclosure rule from the Securities and Exchange Commission. Welsh and other shareholder advocacy groups previously told ESG Dive a large portion of the falling ESG approval rates are due to dropping support from the largest asset managers, which the proxy preview re-affirms in its executive summary. However, Welsh said she could not ignore the impact that the politicization of ESG played in the decline as well.
“Politics clearly had a role to play and cast a chill on the top end of proposal voting,” she said.
Proposals on artificial intelligence are expected heading into this year’s proxy season, along with an emergence of proposals on how corporations approach and incorporate biodiversity into their strategies, according to the report.
Beyond those two materializing topics, the makeup of the ESG-related proposals before companies largely resembles prior years. Proposals pertaining to corporate political influence and climate change remain enduring concerns for investors. Though just 106 climate-related proposals had been submitted, as of mid-February when the report was completed, compared to 139 at the same point in 2022 and 121 in 2021.
However, the decline in climate proposals is due, at least in part, to companies taking more climate actions requiring a lesser need to file proposals, Michael Passoff, Proxy Impact’s founder and CEO said in the webinar.
“In this case, the decline seems to be a good sign,” Passoff, the report’s co-author, said.
The top climate-focused topic for investors was transition planning with 42 proposals submitted to companies. Passoff said greenhouse gas emissions reductions are at the core of many of these proposals, and “shareholders want to make sure companies are following science based targets” that keep global temperature rise below 1.5 degrees Celsius.
Passoff said proposals asking for companies to set targets and goals have decreased, partially because companies increasingly report them. Instead, such proposals are now typically more company-dependent.
Last month, activist investors Arjuna Capital and Follow This withdrew a proposal requesting ExxonMobil ramp up its scope 1 and scope 2 emissions reductions targets and set a scope 3 target, after the oil giant filed a lawsuit to allow it to exclude the proposal. Despite the withdrawal, Exxon is continuing to pursue the lawsuit.
