Shareholder Proposal Data May Not Paint the Full Picture of ESG Progress

Support for shareholder proposals declined in the 2023 proxy season –an Alliance Advisors report uncovers potential reasons why, but this doesn’t reflect lack of support for ESG overall. Despite (or perhaps due to) a proliferation of proposals, a two-year downward trend in overall shareholder voting support is noted in what was referred to as “disappointing results seen by activists on their ESG proposals.” 
 
Driving trends. Alliance focused on five factors that impacted the downward trend in overall support:

• Narrowed focus of prominent activists. The Chevedden group – responsible for almost 75% of proposals on the governance end of ESG - streamlined their focus to three areas: independent board chairs, executive severance pay and advanced notice bylaws, none of which typically gain high levels of support.
  
  
• Overly prescriptive proposals.  With the dramatic increase in proposals, large institutional investors have eased up in their support of proposals they perceive as overreaching and lacking a connection to long-term value. However, they still supported many ESG proposals that they considered reasonable. 
  
  
• Increased board opposition.  Last year may have been an anomaly with 20 resolutions that passed unopposed by the board. This was not common in 2023.
  
  
• Proxy advisor views. ISS supported 51% of governance proposals – down from 76% and 83% in 2022 and 2021, respectively. Support for compensation, environmental and social proposals also went down – again, this may be due to the overall high number of proposals that were required to go to a vote.
  
  
• Anti-ESG pushback. The politicization of ESG has resulted in a slew of anti-ESG filings that came about in the year. While anti-ESG proposals did not gain much support, overall “S” and “G” proposals dropped significantly with stakeholders in the crosshairs of the debate.

The Other Side. Meanwhile, As You Sow published their annual shareholder impact report touting their engagement outcomes which included 210 engagements across 169 companies. They indicated that companies are taking steps to address ESG risks as highlighted by the fact that 99 of their 210 engagements were not escalated by submitting a resolution because “a conversation was enough” and “is a testament to [their] skill working with corporate management to find solutions.”
 
Relatively high number of withdrawals:

• Of the 111 engagements that went beyond a conversation, 51 were resolved and withdrawn.
• 48 went to a vote with only 2 of 8 omitted by the SEC.
• Of the 48 on the ballot, 96% reached the threshold for resubmission.

So, what? There is evidence to suggest that the number of proposals may increase in 2024 and overall support may continue to be low.  Finalized amendments to Rule 14a-8 could further narrow the scope to exclude shareholder proposals from the ballot which may result in another year of increased filings. However, looking at resolutions is just one piece to consider in understanding the overall influence investors have on company practices.  With the upcoming election, anti-ESG sentiments will likely increase, and many companies and investors will prefer to resolve concerns behind the scenes.