The number of environmental and social (the E and S in ESG, short for environmental, social, and governance) investor proposals filed this annual-general-meeting season promised to set records, not only in absolute numbers but also for those making it to a vote. That’s bearing out.
By the beginning of the third week in May, investors had filed nearly 600 environmental and social proposals, about 100 more than in last year’s pivotal season, highlighted by the proxy revolt at Exxon Mobil, preliminary data compiled by the Washington, D.C.–based Sustainable Investments Institute (Si2) for Fortune show.
And it’s up from early predictions in Proxy Preview, a sweeping report compiled by nonprofits As You Sow, Proxy Impact, and Si2. The number of proposals “tightly focused” on climate change alone rose to 113 from 85 last year and 68 in 2020, according to Si2. Six of 17 shareholder proposals that won a majority vote (so far) are tied to racial justice. And issues directly tied to workers like safety were on 65 ballots going into the season, Proxy Preview found. The calculations are derived from regulatory filings with official vote counts, so aren’t final.
“The filings are up, but also the number that are going to vote is up really substantially,” says Heidi Welsh, a founding executive director of Si2 who has followed shareholder proposals since the late 1980s. She expects more than half of the proposals to reach a vote when all is said and done.
“It’s just amazing,” Welsh says.
What makes this year different? In November, the U.S. Securities and Exchange Commission made it harder for companies to block some shareholder proposals, lifting President Donald Trump–era restrictions and updating other long-standing criteria for proposals to make it to a vote, proxy watchers say.
Other SEC changes include pending climate disclosure rules for companies and proposed ESG criteria for funds aimed at giving investors more specific information. The push comes amid a new barrage of scientific evidence detailing how the pace of climate change is accelerating and movement from regulators and standard-setting bodies that set emissions reporting.
As President Joe Biden’s climate agenda stalls in Congress, the SEC proxy changes and proposed disclosure rules may be one of the “last vestiges of what the Biden administration can get through in terms of climate policy,” Welsh notes.
There’s a “sense of urgency and the sense that you can push companies to do things on a company-by-company basis, which, rolled up, has some impact overall,” Welsh says. “And so climate-related activists are all in on the shareholder proposal process.”
Proposals range from demands for better net-zero plans to specific requests for disclosure on indirect greenhouse gas emissions (GHG) known as Scope 3, shorthand for emissions from activities that aren’t directly owned or controlled by a business, like supply chains. Other proposals include issues like plastics use and forestry. Many build on benchmarks set forth by Climate Action 100+, a coalition of investor networks that as of March represented more than $65 trillion in assets.
“There are a lot more resolutions, not just at oil and gas companies, interestingly, but at other kinds of companies, asking for targets. And a lot of emphasis on Scope 3,” says Jackie Cook, director of stewardship, product strategy, and development at Morningstar. “Investors want Scope 3 in target-setting.”
Costco’s January meeting set an early tone for the season, Cook and other experts say. Almost 70% of shareholders voted for a proposal filed by Green Century Funds, urging the retailer to disclose Scope 3–emissions reduction plans tied to its supply chain.
At Jack in the Box investors overwhelmingly passed a resolution requesting the company develop a sustainable plastic packaging policy. And at Boeing, management supported a demand for detailed net-zero targets and specific plans to meet them. It garnered more than 90% of shareholder votes.
In some cases, companies now appear to be more willing to work with activist investors to reach an agreement; proposals are then sometimes withdrawn because the proponents are satisfied. Others are bringing such measures to a vote with management support, as in the case of Boeing. The airplane maker agreed to issue a report detailing and evaluating its plans to reach net-zero emissions by 2050.
“Boeing at the end of the day supported the resolution. We got to 91.22%,” says Andrew Behar, chief executive of As You Sow, a corporate accountability nonprofit that acts on behalf of shareholders. Similar to a resolution passed at GE last year, the Boeing resolution involves “disclosure of scope three and 5% emission reduction a year for the next 10 years.”
“That’s what they’ve signed up for. That’s what we’re working on,” Behar says.
Pressure on companies to set net-zero targets and plans to reach them is skyrocketing. Through November, 2,169 global companies pledged science-based emission targets, a recent Boston Consulting Group survey found. In 2018, that number was 501.
Yet BlackRock, Vanguard, and other big management firms seemed to tap the brakes, pulling back support for some proposals amid higher energy prices and what they say are too restrictive demands that may hurt returns.
On May 10, BlackRock issued a bulletin saying it would support fewer environmental and social proposals this year because some are “more prescriptive or constraining on companies.”
CEO Larry Fink told shareholders at the May 25 annual meeting that the firm still sees “climate risk is an investment risk,” according to a transcript.
“But investors are constantly also reevaluating…[We have] to make sure that any transition is fair and just,” he said.
Sandra Boss, who heads BlackRock’s investment stewardship, pointed to the “severe energy shortage stimulated by and exacerbated by” Russia’s invasion of Ukraine.
“And so we recognize that there is therefore a need for investment in both traditional and renewable sources of energy. And that ties to some of the…shareholder proposals that we’re facing in the climate universe,” Boss said.
That view may help explain why proposals at Exxon Mobil and Chevron as well as some banks that finance fossil fuels failed to gain majority votes.
Still, this year’s ESG proposal momentum is unmistakable.
By Welsh’s calculations as of mid-May, 17 proposals had passed with a majority vote with eight tied to climate. Another six were tied to racial justice issues, a “striking” figure, she says. While that might not seem big, companies tend to pay attention once resolutions hit 30%, Welsh says.
Resolutions tied to “human capital,” or the economic value of a worker’s experience and skills, are also gaining ground. More than half of the 65 proposals filed in 2022 tied to work address compensation and pay gaps, Proxy Preview found. The SEC Chairman last year began to consider asking companies to give more details on workers amid the Great Resignation.
Boards are on notice, too. In its letter to shareholders ahead of the 2022 proxy season, State Street Global Advisors CEO Cyrus Taraporevala said the firm expects all holdings to have at least one woman on their board. The letter contrasts with a California judge’s recent ruling that such a requirement—law there since 2018—is unconstitutional under the equal protection clause of the state’s constitution.
Investors are also starting to apply ESG principles to boilerplate issues on the annual-general-meeting ballot, from electing directors to executive salaries—more tightly linking the ES to the G in ESG—Cook says.
“What this is going to mature into is a more considered approach to voting the whole proxy ballot through the lens of climate risk or diversity risk or human capital risk,” Cook says, noting shareholder resolutions in the U.S. are advisory. “Investors are really thinking about the corporate governance arrangements that are necessary to be able to manage in this new world.”
One way to tell if climate commitments will continue to take hold is to examine proposals withdrawn before a vote by investors after dialogue between proponents produces an agreement for the company to address the issue, says Rob Berridge, senior director of shareholder engagement at Ceres, part of the Climate Action 100+ group.
For instance, Kroger, the country’s largest supermarket chain by revenue, agreed to set GHG targets—including Scope 3 along its vast supply chain—after discussions with Green Century. Green Century withdrew its proposal before a vote, Berridge notes.
Of the 225 climate proposals Berridge tracked this year (using a broader definition than Proxy Preview’s tally), 103 so far have been or will likely be withdrawn. That’s in contrast to 69 last year, Berridge says, and works out to a withdrawal rate of roughly 46%, similar to last year’s. The steady rate is heartening, he notes.
“We think that’s very high. If you think about it, almost 50% of all climate-related shareholder proposals that are filed are withdrawn for a commitment” by companies, Berridge says. “I mean, that is just incredible.”
