The Bottom Line: Anti ESG shareholder proposals have been rising, but challenges aside, companies are expected to continue to address relevant and material ESG risks.
Observations:
- According to a report published on May 24, 2023, by ISS Corporate Solutions, the volume of shareholder proposals for annual meetings held between January 1, 2023 through May 31, 2023 increased by 3.3% on a year-over-year basis. The rise since 2020 is 14% or four times higher. That said, the overall support for shareholder proposals seems to be dropping off.
- The growth in shareholder proposals can be attributed, in part, to the rise of anti-ESG shareholder resolutions that have jumped by 72% year-over-year, although from a small base of 43 in 2022 to 74 so far this year and by more than 400% since 2020. Anti-ESG proposals, as noted in the ISS report, aim to discourage companies from implementing climate or social initiatives. The anti-ESG shareholder proposals, which are receiving very low levels of support, with a peak of 3.4% in 2022 and none have passed so far this year, are nevertheless introducing additional challenges for companies as they must negotiate an increasingly polarized landscape. Regardless, companies and their boards are expected to continue to address relevant and material environmental, social and governance risks in their decision making, in line with what they have done in the past, as they seek to achieve long-term sustainable value.
- Not surprising, large-capitalization S&P 500 companies accounted for 90% of the shareholder proposals. Shareholder proposals involving large companies attract more attention, are likely to have the greatest impact and potentially serve as models for other businesses.
- Proposals on social issues, such as diversity, equity, and inclusion (DEI), and human rights, are growing in prevalence and now represent 35% of the total. On a year-over year basis, social issues expanded from 228 submissions to 239 submissions, for an increase of 48%. Compensation-related proposals also increased from 29 to 60 this year, for an increase of 69%.
- At the same time, the volume of environmental proposals in 2023 is down from 135 to 128, for a 5.2% decline. Governance-related proposals and blended environmental and social-related proposals are also down year over year. While the number of governance proposals is down, the topic remains relevant; board-related issues and shareholder rights are among the most common proposals and they continue to receive strong support from shareholders.
- Overall, just 30% of the proposals submitted have reached a final vote in the period, 111 have been withdrawn so far and almost 400 are still pending. To date in 2023, median support for shareholder proposals stands at 25%, and just 8.3% received majority support compared with 12% for the first five months of 2022.
