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ESG Explainer: 2022 AGM Season

After 2021’s skirmishes, this year’s AGM season could see investors push even harder on ESG-related resolutions.

Asset owners’ increased attention to ESG risks, particularly around climate concerns, has led many to take a more active role at AGMs as part of their stewardship activities. Frequently, investors want faster changes and more information on ESG risks and impacts than companies are prepared to offer.

Over the past several years, shareholders have increasingly used AGMs to hold accountable companies that are perceived to not be doing enough, or reneging on promises, often in collaboration with like-minded partners.

As the AGM season for 2022 approaches, and 2030 commitments loom on the horizon, ESG Investor looks at several themes and companies that could see controversies and disagreements flare up.

How did 2021 AGMs proceed?

Discussion of climate change proposals intensified at 2021 AGMs, a number of which were held virtually.

Large investors said early in the year that they intended to support more shareholder proposals on climate change. By February, Climate Action 100+ investors had already filed 37 shareholder proposals at North American companies, such as ExxonMobilPhillip66 and Berkshire Hathaway.

Companies such as HSBC also saw rows due to their laggard status on reducing greenhouse gas (GHG) emissions, with the UK bank targeted for its coal financing policies. Conflicts rumbled on for several months after AGMs: ExxonMobil, which is no stranger to AGM fights after the shock victory by activist investor group Engine No 1, went on to see more divestment over the rest of the year, as newly installed directors failed to reassure investors.

The firm has moved further, issuing this week a plan to achieve net zero by 2050, but this may not be enough to avoid dissent at this year’s AGM.

Will 2022’s AGM season be confrontational?

“We cannot predict conflict, but we expect a lot of management proposals on climate issues,” says Guillaume Pottier, Campaigner on Stewardship at French civil society group Reclaim Finance. He says this will be focused especially on certain climate proposals. “There has been a call from a large group of investors asking company management to propose climate strategies and for votes on this.”

Pottier highlights the trend toward management proposing their own resolutions – particularly around climate strategy – that are sometimes seen as watered down by activist investors who demand more action. Shell, for example, split investors by offering a transition plan at its 2021 AGM derided by some as “half-baked”. This is a reversal of more traditional AGM conflicts where management is challenged by investors issuing their own proposals.

The underlying reason why more conflicts are being made public via proposals and votes at AGMs is asset owners and managers have signed up to net zero and other commitments, obliging them to push harder to cut climate and other ESG risks from their portfolios. This means they need to see quicker action from investee firms. Asset managers have recommitted to voting in line with asset owner priorities, unlike last year, as promised recently by Cyrus Taraporevala, CEO of State Street Global Advisors (SSGA), the world’s fourth largest asset manager.

Here, we propose several AGMs which stakeholders believe could see the biggest conflicts erupt between shareholders and boards.

How will environmental issues be addressed at AGMs?

With net zero top of the investors’ agenda, fossil fuel firms and energy utilities can expect a high degree of scrutiny.

French oil major Total will likely be watched by investors at its AGM. The firm has disappointed with decarbonisation efforts in past years but recently made public declarations around its environmental strategy.

In 2020, investors managed to pass a resolution asking for clarity around Total’s GHG reduction targets.

“In 2021, however, we had a lot of really bad climate strategies that were rubberstamped by investors not based on their contents, but just to praise the fact that companies had presented something at all,” says Pottier.

Total’s plan was published in the middle of the French AGM season, meaning investors had little time to read it, Pottier says. As a result, it received more than 90% approval from investors.

“The narrative is shifting, and most investors want more than just the appearance of climate action,” he says, and anticipates more investors trying to increase Total’s speed of transition.

Other French companies that could see conflict at their AGMs include Engie, a major utilities firm. The company made promises to exit coal in Europe by 2025 and the rest of the world by 2027 but so far has done this by selling assets to other companies instead of shutting them down.

Reclaim Finance pushed Engie to have a coal phase-out plan published in 2021. This year, it plans on lobbying investors over its sale of a coal plant in Brazil.

As well as efforts to accelerate its coal phase-out, there is mounting debate about Engie’s dependence on liquified natural gas (LNG), since it secretly signed an import deal with a US shale gas company, without informing its investors, or its main shareholder, the French government.

Another company expected to face challenges at its 2022 AGM is Vinci, a major infrastructure builder with operations in over 100 countries and €23.2 billion in revenue in the latest fiscal year.

Vinci saw controversy last year when the US public pension fund CalPERS and the Office of New York City Comptroller abstained from a ‘Say on Climate’ vote that was put to its shareholders.

The ‘Say on Climate’ campaign seeks to secure annual advisory votes for shareholders on corporate decarbonisation plans. It was launched by UK hedge fund manager Sir Chris Hohn and his firm The Children’s Investment Fund (TCI) in November 2020 and has divided investors.

Pottier believes Vinci will see another fractious AGM season this year with more pressure to show positive sustainability outcomes from the passage of last year’s measures.

Which companies will be asked to address social issues?

Last year saw a high proportion of shareholder resolutions focused on securing fairer treatment of employees in light of heightened racial tensions in the US and the unequal impacts of the pandemic.

These themes are likely to continue, but 20220’s AGM season could also see conflicts between biotechnology and pharmaceutical companies and investors, around equitable access to COVID-19 treatments internationally.On 6 January , a group of 65 institutional investors told Covid-19 vaccine manufacturers – including Moderna, Pfizer, Johnson & Johnson, and AstraZeneca – to link executive remuneration with vaccine equity and distribution targets. This was amid concerns that the majority of the world’s population “still does not have sufficient and equitable access to vaccines”.

Moderna was criticised in December by shareholders who wanted to know why its vaccine is so expensive and unavailable in poorer countries. In November, asset-manager Legal & General Investment Management (LGIM) wrote to Moderna saying that “universal and low-cost vaccine access is critical to save lives, stabilise the economy, and prevent domestic outbreaks”.

LGIM proposed that at Moderna’s next AGM, shareholders formally ask management to explain “whether and how Moderna’s receipt of government financial support for development and manufacture of a vaccine for Covid-19 will be taken into account when making decisions that affect access to products, and setting prices”.

However, some fights have been staved off, which could show the way ahead for other vaccine manufacturers. In October 2021, Members of the Interfaith Center on Corporate Responsibility (ICCR) and other Merck shareholders said they were “gratified” by the news that the company had entered Covid-19 anti-viral drug, molnupiravir, into the Medicines Patent Pool (MPP) to allow for royalty-free patent-sharing with generic manufacturers.

“Investors welcomed the agreement that will hopefully pressure other pharmaceutical companies with Covid-19 entries in late-stage trials such as Pfizer and Roche to follow suit and enter into negotiations with the MPP, and for peer companies to consider joining similar license-sharing programmes,” said ICCR in a statement.

Other sectors are also seeing pressure around social issues. The food industry remains at the top of the lists for activist shareholders after the pandemic’s exacerbation of existing challenges. In the US, several investor groups are focused on supermarkets, meat companies, and the restaurant industry, which have long standing issues with low pay, poor workers’ rights and supply chain negligence, ahead of AGMs.

The ICCR told ESG Investor that retail and restaurant companies are a focus “due to frontline exposure” to Covid-19. “Worker rights are central, including requests for paid sick leave policies,” It added.

Last year, UK supermarket giant Tesco was pressured by a group of investors that partnered with ShareAction to set a target to increase the proportion of healthy products to 65% by 2025. The supermarket has a 27% share of the British market. Ahead of its 2022 AGM, ShareAction continues to monitor Tesco’s sales of healthier foods in the UK and Ireland as well as the company’s strategy on its Central European operations around these targets. Other companies are also likely to be pressured in 2022 on their healthy foods sales.

What governance issues will be highlighted at 2022 AGMs?

Google’s parent company Alphabet, which has a dual class structure, is one predicted AGM where governance could be top of the agenda.

Alphabet has 11 ESG-related proposals to contend with at its AGM later this year, But the odds are stacked against their success. The company’s Class B shares are owned by Google insiders and early investors, worth ten votes per share.

In early January, shareholders announced proposals they had filed for the 2022 Alphabet proxy, raising a series of civil/human rights and governance risks that they said were material to their investments.

“Shareholders filed proposals calling for increased disclosures, risk assessments, and policy changes needed to prevent significant impacts to Alphabet stakeholders including its workers, the users of its platforms, its customers, and investors,” said supporters of the proposals. These include Trillium Asset Managers, advocacy group SumOfUs, endowment fund The Nathan Cummings Foundation and the Investor Alliance for Human Rights.

The group’s statement said the issues raised by the proposals cover a range of ESG issues, asserting “collectively they underscore how Alphabet’s unparalleled reach and influence require enhanced oversight structures to mitigate potential human rights and digital rights harms”.

Alphabet has also increased executive remuneration.

Meta, formerly Facebook, faces multiple resolutions, having been beset with scandals over the past year.

As You Sow, shareholder advocacy group based in California, filed a resolution against Meta on governance strategy in December 2021. Andrew Behar, CEO of As You Sow, said the resolutions were based around the “fact that the company has put a lot of resources into fixing issues around child pornography, hate speech, and the spread of disinformation but it’s still not fixed”. The filing contains nine resolutions.

Behar says it is a governance issue as Meta’s board structure means CEO Mark Zuckerberg has a “ten-to-one” voting system, meaning that independent shareholder resolutions are crushed. “This is a serious risk to the company and they need to do something about it.” Behar says action so far has “not been effective”.

Will the 2022 AGM season trigger change?

For asset owners, publicly voting against the board of an investee firm is not done lightly. In some respects, it represents failure of prior engagement activities, as well as an escalation of them, to increase the pressure for change.

Reclaim Finance’s Pottier is blunt in his answer: “No, actually, we’re pessimistic. We see investors wanting to engage when they should just get out of these companies.”

The campaign group has been critical of what they see as asset owners’ incremental approach and Pottier says 2022 could only see marginal improvements on specific targets, with AGMs used to communicate flawed commitments. “The AGMs could be a way of validating bad choices, and delaying more ambitious climate action.”

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