Proxy Problems
It’s proxy season. And that means an increasing amount of ESG resolutions to contend with, on top of other stakeholder pressures.
Last year, shareholders filed 348 environmental- and social-related proposals, up from 314 in 2020. Earlier this year, climate change shareholder proposals were already up 88%.
If you are on top your ESG game, great. If you still have some work to do, you need to prepare.
These proposals can force real governance change. Take last year’s example, when on the same day activist investor Engine No.1 won seats on ExxonMobil’s board (despite controlling just 0.02% of the company), Follow This forced Chevron to act on its Scope 3 emissions. While this was happening a Dutch court ordered Shell to improve its emissions-reduction plans. That’s now been picked up by ClientEarth, a shareholder in the oil major, which is moving to target its directors.
It's expected this rising number of ESG proposals will be matched with increased support for change. Indeed, just last week, almost 20% of shareholders rejected Barclays’ climate plan as not good enough.
Asset managers, that are under ESG pressure themselves, have also made pledges to hold companies to account. They are focused to gather more information on emissions, climate risk, workforce diversity and lobbying. It’s worth pointing out this tough talk is not yet always followed by action.
But asset managers themselves are also being held to account. This is important, considering the influence such large investment firms have on resolution outcomes. And investor engagement is arguably one of the most effective tools in changing corporate behaviour.
It’s also worth noting BlackRock is now offering its investors greater voting powers. Analysts expect this approach to be adopted by others. This will likely make it more difficult to determine how a vote is going to go. Technology and ease of access will increasingly open votes up to younger retail investors – who want more on ESG.
Here’s how to prepare. It’s a tricky tightrope to walk to get things right, at least in the short term. There’s nuance and complexities to contend with, and different groups to appease. Proxy advisory firms are straddling both sides of the fence.
The trends are clear. Stakeholders are expecting more and this will continue. This additional layer of risk means decisions will come under greater scrutiny. You will be held to greater account.
Make sure your actions are consistent. If you have a position on an issue, make sure another part of your business isn’t lobbying against it. Consistency and a clear transition path will reduce clashes with shareholders and make for an easier navigation of the ESG waters ahead.