In the coming weeks, investors will (virtually) gather at thousands of annual general meetings across the globe. This time of year, dubbed “proxy season,” is when most publicly listed companies hold shareholder meetings. Investors will have a chance to voice their opinion and vote on proposals brought forward by management and other shareholders.
The 2021 proxy season is shaping up to be one dominated by social issues. After a year in which racial inequality and political involvement came into the spotlight, investors are assessing how the companies they invest in factor into these social equations. Consequently, this proxy season is likely to focus more than ever on companies’ contributions to politicians, lobbying efforts, racial equity audits, and diversity in boards. For example, shareholders have brought forward proposals to conduct racial equity audits at six systemically important banks in the United States. While support for socially conscious proposals is often limited, developments in the past year may drive support up.5
Voting at annual general meetings is a direct way for investors to make their voices heard and is an integral part of being an active owner. As management provides voting guidance for each ballot item, a vote with or against this guidance is a reflection of the trust investors have in management. While voting proxies is a critical way of expressing investor attention to ESG issues, it is often a measure of last resort. In our view, long-term engagement with management to drive measurable improvement on disclosure or operational performance on environmental or social issues is a way for investors to drive positive impact. If engagement fails to yield satisfactory results, investors can use their vote to force change, or to block a director’s nomination to the board. Fewer than 15% of shareholder proposals related to environmental and social issues received majority support in 2020, indicating that investors may want to continue engagements behind closed doors.6
Investors can demand and push for additional corporate disclosure based on commonly utilized frameworks (for example, the Task Force on Climate Related Disclosures [TCFD] or the Sustainability Accounting Standards Board [SASB]). These issues are frequently raised for large-cap companies, especially in the United States. Beyond asking for more standardized disclosures, engagement strategies can help accelerate a change in a company’s strategic and operational direction. To achieve consequential change at large companies, investors likely have to coordinate for their voice to be meaningful. Such coordinated engagements are becoming more commonplace, for example through organizations such as ClimateAction100+. In 2020, joint engagement efforts led to oil-major Royal Dutch Shell announcing plans to be net-zero by 2050 or sooner.7 As a result of these coordinated engagement efforts, we may see fewer proposals related to climate change at this year’s annual general meetings, as companies opt to adopt new policies without putting them to a vote.
- Voting is the most accessible way for investors to drive change within organizations. Shareholder proposals that are brought to a vote are those issues that are most important to investors—this year addressing social inequalities and political involvement.
- Engagement strategies can be used to be a part of the solution; rather than avoiding investing in companies with poor business practices, engagement strategies actively pursue them and push for (strategic) changes.
- Not all engagement strategies are created equally; achieving structural change in the corporate sector will require support from a wide range of investors. We find that the most intentional ESG engagement strategies often focus on small- and mid-cap companies because of higher success rates of engagement. Investors should be conscious of the intentionality behind engagements, as well as transparency around the strategy’s goals and progress on engagements.