New environmental, social issues made for ‘unprecedented’ 2022 proxy season

New on the shareholder agenda were more exacting demands concerning climate-related initiatives; racial justice and civil rights audits; and diversity, equity, and inclusion (DEI).

Several reports tracking the proxy season highlighted record numbers. Georgeson, a firm that tracks shareholder engagement, analyzed annual meeting results from July 1, 2021, through May 16 for companies within the Russell 3000 Index and determined a record-breaking 924 shareholder proposals had already been submitted. The previous high was 837 in 2021.

Another report, the Proxy Preview 2022, highlighted an “unprecedented” proxy season, pointing to a record-breaking 282 votes and 34 majorities votes observed before July 13 favoring disclosure and action on environmental, social, and governance (ESG) shareholder resolutions.

“U.S. shareholder proposals have long focused on the ‘governance’ portion of ESG—issues like shareholder rights and independent board chairs—but 2021 saw (the start of) a significant increase in support for proposals targeting environmental and social change,” said Harlan Tufford, vice president at investment information provider MSCI.

Tufford said it’s also worth noting the historic impact of shareholder proposals overall. Among U.S. companies, a common proposal over the last five years was a call for companies to publish annual sustainability reports.

“Increasingly, however, we’re seeing proposals calling for deeds rather than words, in particular for the implementation of greenhouse gas (GHG) emissions reductions targets,” he said.

Climate-related proposals: Heightened demands concerning climate-related initiatives have made their mark. For example, while shareholders filed proposals concerning GHG emissions reduction targets of a more general nature in the 2021 proxy season, most proposals filed in 2022 explicitly sought targets across Scopes 1, 2, and 3 emissions, according to Georgeson’s report.

In the insurance industry, some shareholders tried to push the envelope, asking companies like Chubb and Travelers to not finance fossil fuel extraction projects at all. While those proposals didn’t pass, resolutions at Chubb and Travelers calling for disclosures on the carbon impact of financing extraction projects received 72.2 percent and 55.8 percent of shareholder support, respectively.

More climate-related proposals were withdrawn because of companies reaching agreements with shareholders.

“The primary push on climate change was all about GHG emissions and net-zero goals, and a lot of companies agreed to that,” said Heidi Welsh, executive director at Sustainable Investments Institute, a nonprofit that conducts independent research on social and environmental issues affecting corporate behavior.

At aerospace company Boeing, 91 percent of shareholders supported a resolution asking the company to align the full scope of its GHG emissions with the Paris Agreement’s goal of reaching net-zero emissions by 2050. Similar resolutions at General Electric and Sysco received 98 percent and 92 percent of shareholder support, respectively.

Racial equity and civil rights audits: In addition to focusing on climate change and DEI, a series of shareholder proposals for the first time called for racial equity audits or civil rights audits during the 2022 proxy season.

“It usually takes a while for proposals to earn support, but there were actually eight majority votes this year, which is pretty unusual and quite striking for a ‘new’ issue,” Welsh said.

Resolutions of this nature specifically called for an analysis of the company’s “adverse impacts on nonwhite stakeholders and communities of color,” with input from “civil rights organizations, employees, and customers.” The eight companies that received majority votes were Altria, Apple, Home Depot, Johnson & Johnson, Maximus, McDonald’s, Stericycle, and Waste Management.

Politically motivated proposals: Corporate-related political spending on elections and lobbying—and more broadly, intensified focus on companies that supported politically charged issues—also received attention this proxy season, specifically that companies remove themselves from any political contributions.

“We believe that companies should remove themselves from the political process and that funding political candidates is not a good idea for business,” said Andrew Behar, chief executive of nonprofit shareholder advocacy group As You Sow.

Shareholder engagement

Something for companies to keep in mind: Shareholder proposals and proxy battles are an escalation of the shareholder engagement process.

“Creating dialogue opportunities between directors/senior managers and a company’s investment community can help to stave off the most disruptive kinds of engagement and activism and better align the company’s activities with investor expectations going forward.”

Harlan Tufford, Vice President, MSCI

“Dialogue can lead to compromise instead of conflict,” Tufford said. “Creating dialogue opportunities between directors/senior managers and a company’s investment community can help to stave off the most disruptive kinds of engagement and activism and better align the company’s activities with investor expectations going forward.”

In preparation for the 2023 proxy season and beyond, companies would do themselves a disservice if they did not collaborate and communicate with their largest shareholder investors.

“It’s critical they have that communication, and it’s critical everyone is singing from the same hymn book,” said Edward Greene, managing director at Georgeson. In practical terms, that means ensuring messaging is consistent throughout—for example, confirming whatever the investor relations team says on earnings calls matches messages being sent by the executive team, he said.

Further, companies have resources available to understand where shareholders are focusing their efforts. On the Sustainability Accounting Standards Board’s website, for example, businesses can browse shareholder proposals by industry or company.

Additionally, firms can perform a gap analysis to compare their disclosures to their peers. To the extent a company is discussing its disclosure requirements internally, “that conversation also definitely includes the compliance team,” Greene said. In particular, compliance can play a valuable role by working with the business to ensure ESG disclosures are accurate, truthful, and complete.

A failure to understand how the company’s largest shareholders feel about any number of hot-button issues and the disclosures they are seeking puts the company at a disadvantage if they receive a shareholder proposal and they haven’t worked through those issues in advance, Greene said.

“It’s in the spirit of wanting to build a just and sustainable world that more shareholders are coming forward and wanting to collaborate with companies,” Behar said. “I think companies realize they want that, too. I honestly feel like we’re at a real incredible pivot point in history.”

Editor’s note: A previous version of this story identified MSCI as an investment adviser. It was corrected July 29 to investment information provider.