Americas

US Environmental and Social Proposals Hit New Heights

More than 370 votes were held last year, breaking a record for the third consecutive year, but shareholder support has been receding.

Institutional Shareholder Services (ISS) Governance’s 2024 Global Outlook Report has projected that US environmental and social (E&S) shareholder proposals could either match or surpass the numbers reached last year.

The annual report – which examines trends and key issues likely to be faced by institutional investors – noted that the number of E&S-related shareholder proposals submitted in the US in 2023 were the highest on record for a third consecutive year.

ISS recorded 643 E&S-related proposals submitted last year – a 6% increase from the 608 submitted in 2022. The report has forecast that a similar or higher number of E&S-related shareholder proposal could be filed this year.

Last year, a total 372 E&S proposals went to vote – up from 50 in 2022 – setting a new high for a second consecutive year.

ISS flagged that climate change and diversity, equity, inclusion (DEI) proposals, appear to be the most dominant topics for filings so far this year – a trend which it said is set to continue. In addition, anti-ESG proposal filings will likely continue to surge and are set to be among the top-four E&S proposal types filed this year.

Further, ISS highlighted workplace issues, human rights, and environmental pollution as subjects that would likely trigger high numbers of shareholder proposals, and anticipated an increase in the prevalence of plastics, packaging, and deforestation.

Requests for reporting on plastic demand reduction have been filed at Amazon, Exxon Mobil, and Restaurant Brands International. Multiple deforestation-related proposals have been submitted, including a resolution at Tyson Foods requesting accelerated efforts to eliminate deforestation risks from the company’s supply chains by 2025. Tyson recently rejected a proposal on child labour filed by the American Baptist Home Mission Society and six faith-based co-filers.

“This year’s main proxy seasons are taking place amid continuing uncertain global macroeconomic conditions,” said Georgina Marshall, Global Head of Research at ISS Governance. “Many companies and investors will face challenges through 2024 regarding key governance and stewardship issues on topics such as corporate risk management, climate change risks, executive compensation, human capital management, and shareholder activism.”

Sliding shareholder support

While the number of E&S shareholder proposals increased, their average level of support from shareholders declined for a second year in a row in 2023. E&S-related shareholder proposals garnered 18.7% in support on average, down from 26.2% in 2022.

Anti-ESG proposals, for example, received significantly lower levels of support and contributed to the overall decline. However, even without the votes on anti-ESG included, overall shareholder support fell from an average 27.7% in 2022 to 20.8% last year.

The report suggested the decline in support was likely exacerbated by the increased number of E&S shareholder proposals voted on, as well as a rise in proposals seen as more prescriptive and/or less likely to improve long-term shareholder value.

The decline in shareholder support was also reflected in the dropping number of majority-supported E&S proposals: only eight passed in 2023, compared to 37 the previous year.

Additionally, the number of withdrawn E&S proposals (226) was notably higher than for governance and executive compensation-related proposals, suggesting that proponents were still more willing to negotiate on E&S-related topics.

Research from Morningstar published this week also found that US asset managers only used supportive language for voting policies that requested core climate-related disclosures – such as Scope 1 and 2 greenhouse gas emissions, and reporting aligned to the Taskforce on Climate-related Financial Disclosures framework – or addressed issues of workforce management, safety, and conditions.

Last year, only two resolutions deemed to be key by Morningstar addressed environmental risks other than climate which addressed water risks and plastic packaging issues.

Augmented AI attention

The report also highlighted that technology firms would likely be subject to high levels of shareholder proposals due to their central role in the rapid changes driven by AI.

Some have already started to face those, including Apple, where last week a proposal received 37.5% of votes despite the company having advised its shareholders to vote against.

The proposal – filed by the pension trust of American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) – requested that Apple publish a transparency report on the use of AI in its business operations.

Proposals requesting similar reports from several media companies – including Comcast, Disney, Netflix, and Warner Brothers Discovery – have been filed. In addition, fellow members of the Investor Alliance for Human Rights recently filed similar proposals at Alphabet, Amazon and Meta.

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