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When it comes to ESG, your shareholders want a plan this proxy season

March 9, 2022, 11:31 AM UTC

Good morning,

It’s the annual meeting season for corporations, and environmental, social, and governance (ESG) will continue to be on the agenda.

BlackRock, the world’s largest asset manager, holds shares of a wide range of companies on behalf of its clients. Each year, the firm reviews and updates its global principles and market-specific proxy voting guidelines. This year, BlackRock’s Engagement Priorities for 2022 addresses the use of ESG factors in executive pay, although not explicitly calling for it.

“We highlight that if ESG criteria are included in executive compensation programs, those metrics should be rigorous, aligned with a company’s strategy and business model, and linked to company performance,” according to the report.

BlackRock is opening up “voting choice” (an opportunity for their institutional investors to participate in proxy voting decisions) first available to clients in the U.S. and U.K. where it’s “legally and operationally” viable, the firm announced in October. This pertains to about 40% of the $4.8 trillion index equity assets it manages. But BlackRock hasn’t yet said how many will participate. Broadridge Financial Solutions (NYSE: BR) is the firm’s technology partner for the endeavor.

For insight on both the 2021 and 2022 proxy seasons, I spoke with Broadridge CFO Edmund Reese. The fintech offers investor communications and technology platforms for governance, capital markets, and wealth management. 

Institutional investors cast 40% of their voted shares in favor of environmental and social proposals in 2021, the highest level in at least five years, according to Broadridge’s new report. And that figure is likely to rise this proxy season, Reese says. 

“Institutional investors are voting in favor of many of these shareholder proposals because they are focused on the principles of ESG, but also focused on having hard metrics, specific targets, and objectives from the company,” he says. “And these shareholder proposals have that.”

This is also a regulatory tailwind, Reese says. “There’s a large expectation that we’ll soon see some specific guidelines from the SEC on what companies have to report,” he says.

The report examined voting trends covering 4,125 public company annual shareholder meetings held between January 1, and June 30, 2021. It found that for 79 proposals identified as pertaining to environmental and/or social matters, support among all shareholders increased from 33% overall in 2020 to 37% in 2021. 

Institutional investors were more than twice as likely as retail investors to support environmental and social proposals. In 2021, only 18% of votes by retail shareholders were cast in favor of environmental and social proposals. 

“There is a demographic explanation,” Reese explains. “Traditionally, 50 and 60-year-old retail shareholders are not so focused on shareholder proposals coming out. They are typically focused on value creation, for example, funding retirement.”

However, with the democratization of investing, younger retail investors will likely become more involved, according to Reese. “They’ll be more focused on the ‘E’ and the ‘S’ in ESG,” he says. “And I think corporations will have to pay attention to that.”

“In the 2022 proxy season, climate and [diversity, equity, and inclusion] DEI, I would say, are right at the top of the list,” Reese says. You’ll see investors, both retail and institutional, support companies that do well, he says. Human capital will also be one of the most important topics to monitor for the upcoming proxy season, according to Broadridge’s report.

In addition to asking companies to disclose a net zero-aligned business plan, for 2022 BlackRock “encourages companies to demonstrate that their plans are resilient under likely decarbonization pathways, and the global aspiration to limit warming to 1.5°C,” according to the firm’s guidance. 

Broadridge, which has a virtual shareholder meeting platform, found that for the full year 2021, meetings held virtually increased to 2,377 up from 1,957 in 2020, and up from 326 in 2019. Most U.S. states have allowed for virtual shareholder meetings. “If regulation allows, I believe the large majority of meetings will be in a hybrid environment,” Reese says.


See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

A March 8 report by CoreLogic, a global property information and analytics provider, found the U.S. mortgage delinquency rate fell in December 2021. About 3.4% of all mortgages in the U.S. were in some stage of delinquency this past December (30 days or more past due), a decrease from 5.8% in December 2020. This is the lowest recorded overall delinquency rate in the U.S. since at least January 1999, according to the report. “Nonfarm employment grew by 6.7 million workers during 2021, the largest one-year increase, supporting income growth and keeping more families current on their loans,” Dr. Frank Nothaft, chief economist at CoreLogic, said in a statement. “Nonetheless, places hit hard by natural disasters have experienced a spike in missed payments.

Courtesy of CoreLogic

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Leaderboard

Brice Hill was named SVP and CFO at Applied Materials, Inc. Hill was EVP and CFO of Xilinx through its acquisition by Advanced Micro Devices, Inc. He previously served at Intel Corporation for more than two decades including as CFO and COO of the Technology, Systems and Core Engineering Group. Hill formerly served as corporate VP of Intel’s Corporate Strategy and Business Unit Finance. Prior to Intel, Hill worked at General Motors Corporation in various finance positions.

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