The number of shareholder proposals related to social and environmental topics increased relative to previous years, as proposals related to climate change and diversity were in the top five of most common themes among shareholder proposals. Support for sustainability-related proposals, however, fell in the second consecutive year. We see several practical factors at play.
As criticism in the United States mounts, institutional investors are taking a more conservative approach: the three largest American asset managers (BlackRock, Vanguard, and State Street) reported a decrease in support, primarily citing proposals were “overreaching” and “too specific/prescriptive.”
We also point out that the nature and number of proposals are also changing—the SEC is considering further amendments to the shareholder proposal process, aiming to make it easier for shareholder proposals to make it to the ballot. As the road to the ballot is simplified, we expect the increase in shareholder proposals to persist, which may lead to a continued (short-term) decrease in average support figures.
More importantly, sustainability-related proposals have become two-way: the increase in shareholder proposals includes both pro-sustainability and anti-ESG proposals.
ExxonMobil was one of the companies that saw an uptick in shareholder proposals, with 12 shareholder proposals at its annual shareholder meeting (up from seven in 2022). Of the 12 proposals, 10 requested the firm to increase reporting on a variety of environmental, social, and governance topics. The remaining two lie on more extreme ends of the spectrum: One was an anti-ESG proposal aimed at limiting decarbonization efforts due to “flaws in activists’ climate models,” while the other suggested ExxonMobil limit its carbon capture for enhanced oil recovery activities as oil consumption still leads to a “net increase in emissions.” These proposals received very little support (1.6% and 5.2%, respectively), reflecting investor preference for a nuanced approach to the company's low-carbon transition.
The two proposals that gained the most traction (although not reaching a majority) have clearer ties to financial performance. A proposal pushing for more transparency on the company’s efforts and strategy to reduce methane emissions from leaks received 36% support; this topic is of increasing financial materiality as the US Inflation Reduction Act may introduce a charge of USD 900 per metric ton of methane emitted and other penalties. The other proposal, which had 25% support, requested ExxonMobil to assess the impact of a reduction in the use of single-use plastics on oil demand growth and the firm’s financial position and performance, given Exxon is the world’s largest producer of (single-use) plastic-bound polymers.
As the Exxon annual general meeting illustrates, there are various factors driving the superficial decline in average shareholder support for sustainability-related initiatives. However, we continue to see evidence of investor commitment to responsible climate transition. Although neither of the proposals reached a majority, the greater support highlights that investors are more receptive to proposals with clear ties to financial performance and position. More extreme proposals, whether denying climate science or requiring a drastic (overnight) change in business model, are unlikely to attract significant support from any part of the investor spectrum.
Takeaways for investors:
- Voting at annual shareholder meetings is the most direct way for investors to have their voices heard, and over the years we have seen the number of sustainability-related proposals increase.
- With climate-related topics still among key shareholder proposals, the transition to a low-carbon economy remains in focus. Companies that manage their emissions well, have set science-based targets, and are transparent about their environmental impact are likely to see less shareholder dissent.
- Investing in strategies that explicitly focus on ESG engagement (in both equities and fixed income) can provide investors with exposure to active engagement with company management, to drive strategic improvement in sustainability matters they believe are relevant to financial performance.
For much more, see Perspectives: Fashion industry change, Ecuador's deforestation vote, Exxon proxy votes , 11 September 2023.
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