Proxy season heating up for ESG proposals

Expect this proxy season to be a big one, likely with record levels for climate-related and social proposals targeting large public companies that have not done enough around urgent issues, a Broadridge and PWC report has found.

Those proposals will almost certainly gain more support, particularly from institutional investors, if the 2021 proxy season was any indication, according to the report published last week.

2022 Proxy Season Preview found institutions are more likely than ever to support proposals, given the merits of ESG criteria and the greater need for humanity to address climate change. Shareholders are now well aware of this, and will increasingly be drafting proposals with institutional investors in mind.

“As they seek to capitalize on this growing momentum, proponents will likely work to better target their proposals to appeal to large institutional investors’ voting guidelines and public commitments on high-profile issues like climate change and diversity and inclusion,” the groups wrote. “This could make such proposals easier for institutional investors to vote in favor of, creating a feedback loop that drives support even higher.”

Last year, 40% of shares held by institutions voted in favor of ESG proposals, up from 35% in 2020 and 29% in 2017, according to the report. Support by retail investors was much lower, at 18%, a figure that has changed little over the past four years. But institutions hold roughly 70% of shares in public companies, and votes are more likely to go in their direction. Overall, ESG proxy votes saw a 37% approval rate in 2021, up four percentage points over a year, data from Broadridge and PWC show.

The report is based on results of more than 4,100 annual meets for public companies during the first six months of 2021, as well as previously collected data over the past five years.

Further, the Securities and Exchange Commission has made it difficult for companies to fend off proposals that address significant social policy, which bodes well for shareholders, the companies noted.

A recent vote at Costco is an example of shareholders’ recent success. Late last month, a resolution pressing the retailer to measure and curb its greenhouse gases — include Scope 3 emissions, which are wide-ranging and stem from the goods it sells —passed with 70% approval.

A victory by that margin hints that shareholders might have more leverage than ever. In many cases, the threat of a proxy vote can be enough to prompt a company to agree voluntarily to higher standards and new actions.

Fund firm Green Century, which was behind the Costco campaign, similarly filed a proposal for Corning. The latter firm has since announced a commitment to science-based emissions targets. The fund provider also recently saw a similar response from Hain Celestial. Additionally, it has encouraged Tyson Foods to reduce its use of plastic packaging and pressured chemical maker Chemours Co. from buying a mine that it said threatens the Okefenokee National Wildlife Refuge in Georgia.

Earlier this month, Green Century’s Equity Fund filed a shareholder proposal for restaurant chain Jack in the Box, asking it to eliminate single-use plastics in favor of sustainable materials. That change would address several risks, including reputational, competitive, regulatory and inadequate disclosure risks, Green Century stated.