Greater participation by institutional and retail investors offers fertile ground for ESG themes at virtual, hybrid meetings.
The Covid-19 pandemic has prompted radical changes at annual general meetings (AGMs) which are helping to raise the profile of ESG themes, say market professions, who claim the changes have yet to fully play out.
The AGM, the venerable institution at the heart of every public company’s investor relations programme, has emerged from lockdown with institutional and retail investors highly engaged. They are more willing to support ESG priorities, even in opposition to management, and are often supported by technology and structural innovations at AGMs.
Based on 4,700 shareholder meetings held globally in H1 2022, AGM provider Lumi reported that the average number of shareholders per meeting increased by 134% increase compared to the same period last year; while engagement levels also rose, with the average number of messages being sent in meetings growing 25%.
The number of shareholder resolutions filed was higher in several jurisdictions this year, including the US, where 924 proposals were filed compared to 733 the year before. Many of these were related to ESG risks, but outcomes were mixed, with some proposals getting very strong levels of support, while others failed to achieve a majority.
“We are definitely seeing a flexing of the muscles from the institutions,” said Michael Kempe, Global Head of Business Development at Proxymity, the investor communications platform. “The influence of ESG factors continues to trend upwards.”
The changes have been given a big push by two linked factors: the pandemic, which shut down the traditional AGM along with other mass gatherings; and the digital technology that is enabling remote ‘virtual’ AGMs.
Now the distorting effects of lockdown have unwound, there are questions about how those changes wrought on the AGM landscape will evolve.
Notions upended by pandemic
“From the institutional investors’ point of view, there is much more cognisance of public sentiment and feeling among retail shareholders,” said Kerry Leighton-Bailey, Director of Shareholder Engagement at Lumi, which arranges almost all of the FTSE 100’s AGMs and provides the same service for 5,000 global companies.
“There is greater visibility for the institutions this season of those issues about which people feel passionately. As a result, ESG investing has become much more than a tick-box exercise.”
One feature of AGMs in 2022 has been closer scrutiny of executive pay deals, some of which rebounded after a period of restraint during the pandemic. US bank JP Morgan was one of several firms at which remuneration packages were rejected by shareholders, while Amazon executives had founder Jeff Bezos to thank for their deals narrowly being approved.
Hybrid AGMs, part-remote and part-physical, make it much more likely that institutional investors will attend such meetings, she said, as there is less need for portfolio managers and other representatives to dash from one AGM to another. To illustrate the difficulties of attending traditional meetings, she cited the extreme example of Singapore, where about 80% of meetings, “hundreds of them”, are held within a few days of each other.
The pandemic, she recalls, quickly upended many previous notions, one being that shareholders would not tolerate remote meetings. For the most part, the technology existed to facilitate remote voting and communication, but not necessarily the legal infrastructure.
Temporary legislation was introduced in many jurisdictions to suspend the need for physical AGMs (although this was not necessary in the US, which had long allowed remote gatherings). In Australia, for example, this has now been made permanent, but this has yet to happen in the UK.
“We are told that a debate is needed, and that the legislative calendar is very busy,” Leighton-Bailey said.
ESG factors “more important than ever”
According to Lumi, just under two thirds (65%) of AGMs in the first half of this year were run on a virtual basis, 22% were hybrid and only 15% took place completely in-person.
Some companies have become “creative” in getting round the restoration, for now, of the requirement that an AGM be held in a physical “place” in order to maintain the perceived benefits of the hybrid approaches that gained popularity during the pandemic.
“They pick a small venue, seating say 500 people, and then they are allowed to let the rest attend remotely,” explained Leighton-Bailey, “deliberately discouraging shareholders from attending.”
Peter Uhlenbruch, Director of Financial Sector Standards at ShareAction, a UK-based charity focused on responsible investment, says the Covid-19 experience has changed the tone as well as the format of the AGM: “The pandemic, by the very nature of the illness, its effects and sudden appearance, has made investors more aware of ESG issues.”
And in a trend that was under way before coronavirus, but which has intensified since, he said, institutions are more willing to vote against management on issues including re-appointments and executive pay. “Institutional investors have a fantastic opportunity to get involved and to influence companies.”
A recession may be coming, but “it’s actually more important than ever for ESG to be on the agenda, regardless of economic circumstances,” said
ShareAction co-filed an unsuccessful shareholder resolution asking UK food retailer Sainsbury’s to commit to becoming an accredited living wage employer.
Proxymity’s Kempe said the UK regulator, the Financial Reporting Council (FRC), is keen that companies keep the hybrid AGM model in order to maximise the number of investors, institutional and individual, that can attend and engage. “I’m expecting to see considerably more institutions attend than in the past, when they had to pick and choose among different physical meetings.”
In terms of the rise in support for and discussion of ESG factors at AGMs, he said institutions were often responding to increased pressure from those who invested in them. “More and more, they are telling the institutions what they want them to do,” he added. “This has been a big change during the past 18 months and will develop further during the next 18 months.”