Interview

Secrets to Shareholder Proposal Success

With the number of ESG proposals filed not necessarily matched by levels of support, PRI Stewardship Specialist Chloe Horne shares tips on how to file successfully.

Annual general meeting (AGM) season is round the corner and ESG is expected to take centre stage, with climate, diversity, equity and exclusion (DEI) and systemic risk especially in focus.  

But, while the number of ESG-related shareholder proposals has been rising – 20% between 2021 and 2022 – average support fell from around 32% to 27% in the same period.  

A recent report from NGO ShareAction attributes the dip in support for ESG resolutions to the ‘Big Three’ asset managers – BlackRock, Vanguard and State Street Global Advisors – voting in support for fewer than in previous years.   

Speaking to ESG Investor, Chloe Horne, Stewardship Specialist at the Principles for Responsible Investment (PRI), says this lack of support for ESG proposals reflects two key factors: ESG proposals becoming more prescriptive and demanding, and the rising hostility in some quarters of the US market towards ESG – where the Big Three are based.   

The latter factor, explains Horne, is leading some investors to be more reluctant to use voting as a tool to drive sustainability outcomes or support proposals that may be regarded as controversial.  

A change in filing rules in the US in 2021 reversing measures making it harder to file proposals on the grounds of “micromanagement”, means that lot more “prescriptive” ESG proposals can now hit the ballot, she adds. 

“A lot of the low-hanging fruits have already been picked in previous years,” says Horne, such as ESG disclosure and developing ESG strategies and policies. “Now, investors are more likely to look at how they can work with the company on the implementation of those strategies and policies.” 

In response to the evolving landscape, the PRI recently put together a paper highlighting best practice in use of proposals within their wider stewardship and sustainability strategies.  

Withdrawing ESG proposals  

A recent development is investors withdrawing ESG proposals before they even reach the ballot after coming to agreement with a company – but this is not always effective in driving change and suffers from a lack of transparency, warns Horne.  

She explains: “It’s hard to provide examples of this as a lot of these negotiations are done behind closed doors so we don’t know much about what’s happening in the space. And this is part of the reason why withdrawals are not always necessarily the most effective because it is harder to hold companies to account when shareholders don’t have that broader visibility of the commitments they make with investors in private.”  

Horne says to help drive effectiveness it is important for filers to make the information public via investor networks or websites with updates on the proposals that they have filed and whether it has been withdrawn. 

“The most important thing is having really tangible agreements with those companies that you can track over time and make public so that shareholders can hold those companies to account if those commitments aren’t made.” 

She points to a recent PRI blog by colleague Carly Jacobs, Senior Specialist, Stewardship which notes that even for majority-supported ESG proposals, which are starting to grow, companies act and implement on less than two out of every five of them.  

“Investors need to have plans in place to escalate their engagement if those commitments aren’t made by companies. That’s probably one of the most crucial things investors can do when you’re withdrawing a proposal.” 

She said this includes holding boards to account, voting against directors and considering refiling the shareholder proposal in the future and making that engagement “really public” so that other investors can see what you’re doing and how you’d like to hold the company accountable.  

Stakeholder outreach for success  

On making a shareholder proposal success, Horne says direct outreach to different investors, especially those with large shareholdings in the company is key, and “providing them further background on the proposal and what the investor case is for the issue”.  

Useful platforms for outreach include the media and the PRI resolution database, where an investor can highlight upcoming proposals, she adds. It also helps to give more colour on shareholder proposals at investor networking events. “The likes of ACSI in Australia often hold shareholder meetings around AGM periods to allow filers to present on their proposals and add a bit more light to those and answer any questions that investors have,” she explains.  

Horne adds that it’s also important to look outside the investor community to other stakeholders that can have some level of influence in the process that aren’t shareholders.  

“Proxy advisors are really important here,” she notes. “We spoke to a few in our outreach when it came to writing the paper and a few of them said that they find outreach from filers really helpful to provide more context.” 

Also, asset owners can be encouraged to speak with their investment managers on upcoming votes, says Horne, and the end-beneficiary.  

“It’s not necessarily an obvious stakeholder,” explains Horne. “So, here it can be really helpful to identify the interests of your end-beneficiaries and how they’d like to see progress made on different issues and communicate that widely.”  

She points to emerging technological solutions, such as Tumelo, where investors can seek beneficiary views on upcoming votes and get their preferences.  

An example of an ESG proposal which ticks a lot of boxes for Horne was in 2021 when French asset manager Amundi filed a proposal at fast food chain MacDonald’s, asking it to report on the public health costs associated with antibiotic use in its meat supply chain. “It really articulates the reason why investors should support that proposal and the systemic cost associated with the overuse of antibiotics 

Clear evidence, clear wording and a single ask within a proposal, are very helpful to investors, says Horne.   

Country differences 

Filing proposals varies in different countries. Horne says the US is one of the easiest countries to file a proposal, where there is a relatively low threshold for filing. But she also notes that most proposals there are non-binding or advisory, which means the company is not legally committed to implement the asks of that proposal.  

“It means that investors are more likely to feel comfortable with supporting that proposal, knowing that there is flexibility in the way that a company can implement the ask if it receives majority support.”  

She also notes that the Czech Republic, Spain and Sweden have favourable rules around the types of asks that can be put to companies and the threshold requirements and ownership periods to file a proposal.  

In contrast, South Africa is harder to file shareholder proposal due to a lack of clarity around the procedure for filing shareholder proposals, says Horne, including key deadlines and timings of AGMs. There are groups working to improve this, she adds.  

The UK has a high threshold for filing shareholder proposals, she says, and in Cananda the rules vary highly from province to province on thresholds and ownership levels, making it difficult to get clarity on the process.  

Australia is also a relatively difficult jurisdiction in which to file a proposal. “They have a restrictive framework which means that the process is quite complicated to get a proposal on the ballot,” says Horne.  

She says investors there have a ‘double barrel’ approach of filing a special binding resolution to amend the articles of association at a company, and at the same time they will file an ordinary resolution on the ESG issue.  

“There’s ongoing work with different investors and investor groups to get more clarity but also consider reforms to make it an easier process in each of those markets,” says Horne.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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