Dive Brief:
- A rise in anti-ESG proposals propelled an increase in ESG proposals submitted in the 2024 proxy season, according to a recent analysis from Morningstar. According to the firm’s proxy-voting database, ESG proposal growth slowed to 3% this year, compared to 12% and 19% year-over-year increases in 2023 and 2022, respectively.
- Governance-focused proposals at companies targeting shareholder rights were popular, helping boost average support for governance proposals to 35%, up from 30% in 2023, according to the firm’s ESG research arm Morningstar Sustainalytics.
- The rise in support for governance proposals helped the overall ESG resolution approval rate stay flat at 23%, despite environmental and social proposals receiving an average of 16% support, down from 19% in 2023 and 33% in 2021.
Dive Insight:
A 2021 change in the no-action process by the Securities and Exchange Commission allowed proposals that raise social issues “with a broad societal impact” to be included and aided a rise in ESG proposals beginning in 2022. Diligent Market Intelligence reported last month that a record number of ESG proposals went to a vote this year.
However, Lindsey Stewart — the report’s author and director of stewardship research and policy at Morningstar Sustainalytics — said in the analysis that this year’s increase came with “a twist in the tale.”
“For the first time, the growth in new resolutions was dominated by proposals from ‘anti-ESG’ filers — those seeking to advance strongly conservative, or net zero skeptic social policy aims,” Stewart wrote.
Conventional ESG proposals stayed almost exactly even — 558 this year, compared to 557 in 2023 — however, 20 additional anti-ESG proposals were filed in 2023. Anti-ESG proposals rose nearly 30% — compared to a 3% overall increase — from 67 in 2023 to 87 filed as of June 30, the end of proxy season.
Despite this rise, anti-ESG proposals remain unpopular with shareholders. Morningstar estimated that such proposals received just 2% of support, down from 9% in 2022 when they first began appearing on company proxy agendas.
Morningstar said excluding anti-ESG proposals raises average support for ESG proposals to 26%. Stewart, however, said that given over 200 anti-ESG proposals have been submitted in the last three years with no evidence of growing popularity, “it’s reasonable to conclude that their point is to gain attention rather than shareholder support.”
Support for environmental and social proposals continued to decline in 2023, but Stewart said the decline slowed and the continued fall cannot be entirely chalked up to the increase in “poorly supported anti-ESG proposals.”
Support for governance-related proposals ultimately helped bolster ESG proposal support this season. Support for governance matters was on a downward trend in 2022 and 2023, as they also began comprising less than half of all shareholder proposals each year. Morningstar tallied 243 governance-related proposals this year, including eight anti-ESG proposals, down from 296 in 2021.
Last year, the decrease in support was largely attributed to the top-two asset managers BlackRock and Vanguard, as well as other large but “less vocal” firms, chalking up more proposals as micromanagement. While Stewart said “it looks safe to assume that they still hold that view” based on this year’s data, a final determination on what is driving the continued fall won’t be able to be determined until annual proxy-voting records are published.
Morningstar’s analysis aligns with prior reporting from Diligent, as well as law firm Freshfields and the Sustainable Investments Institute, which have all pointed to the falling ESG approval rates this proxy season.
