Environmental, social, and governance proposals submitted to companies have been on the rise, but corporations’ acceptance has lagged behind, according to one study.
This year, shareholders presented 924 ESG proposals to companies in the Russell 3000, up from 837 the previous year, according to the strategic shareholder communications and consulting services business Georgeson & Company in its 2022 Early Proxy Season Review that was published in June. However, the response from many companies to ESG-related issues has been subdued, while opposition to ESG proposals surged over the past year.
According to the Georgeson report, only 20% of specific environmental proposals, or six out of 30, had passed thus far in 2022, compared with 35%, or 14 out of 40, in 2021. The percentage was even lower among social proposals, with just 9%, or 10 out of 107, passing, in contrast to 18%, or 21 out of 188, receiving approvals the prior year.
“This tension may be a driver behind some of the recent pullback in support of proposals from asset managers like BlackRock,” the report states. In its investment stewardship report in May, New York-based BlackRock said it won’t support climate change shareholder votes that try to micromanage its climate change programs. “Many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value,” the report said.
The Corporate Citizenship Project, a think-tank focused on a data-driven approach to corporate governance issues, cautioned against reading too much into the apparent decline in board acceptance of ESG proposals.
“We would caution reading too much into this study because it lacks statistical significance. The fact is that many shareholder proposals are so absurd that no reasonable board would entertain them,” said Bryan Junus, Chief Analyst for The Corporate Citizenship Project.
In our opinion, these proposals are barely worth counting in the study – they include: proposals such as Exxon immediately divesting from fossil fuels. That boards may reject questionable proposals does not diminish our concern that they are still forced to accept some to appease ESG activists. In other cases, the proposals are of no significance and instead reflect gaming of the ESG system pushed by ISS ESG and others.”
The Georgeson report also indicates that the number of submissions critical of ESG issues doubled to 52 from 26 in 2021. The opposition came from three sources typically linked with opposition views on ESG issues – Steven Milloy, The National Legal and Policy Center, and the National Center for Public Policy Research.
Milloy is a former coal company executive who has been a vociferous critic of climate change science. He filed a proposal last year to ban future shareholder resolutions at Exxon Mobil Corp. after sustainable investment advocates garnered enough votes to remove one-fourth of Exxon’s board members.
Paul Chesser, director of the Corporate Integrity Project of National Legal and Policy Center, a Falls Church, Virginia-based smaller-government advocate, has been an outspoken critic of companies embracing ESG policies. He challenged Home Depot’s claim that electricity at all its facilities will be completely powered by renewables by 2030, saying it is not possible.
In an opinion piece that appeared in The Washington Times last August, Davis Soderberg, an associate at the Washington, D.C.-based National Center for Public Policy Research, said, “Corporate America’s embrace of Environmental, Social and Governance (ESG) investing is a true threat to the democratic process,” claiming that it “subverts the fiduciary responsibility companies have to their shareholders.”
Junus, from The Corporate Citizenship Project, warned against making shareholder meetings a forum for political debate.
“The goal of board and shareholder meetings is to advance the company’s and its shareholders’ best interests. Unfortunately, many activists across the political spectrum are trying to use them as forums for their various grievances. The correct forum for political discussion is through political activism, not the board room.”