Proxy Season Analysis: ESG Backlash Persists

The 2024 proxy season saw a rise in politically motivated shareholder proposals, reveals a new report by The Conference Board. Anti-ESG groups increased their activity, focusing on companies’ DEI initiatives, while progressive groups continued to push for changes in line with their priorities.

While environmental and social proposals had little success in passage, governance proposals had many wins. Their success was largely driven by proposals aimed at strengthening the rights of minority shareholders, such as eliminating the supermajority voting requirement and calling special meetings.

Additional findings include:

Proposals by Anti-ESG Groups

While anti-ESG groups increased their shareholder proposal activity, their proposals continued to underperform:

• 108 proposals were filed and 88 were voted on vs. 91 and 65, respectively, in 2023.
• It became harder for companies to negotiate a withdrawal of the proposal with these proponents, but average support remained minimal at 2% (down from 5% in 2023).

 Anti-ESG groups intensified their focus on companies’ climate and DEI initiatives:

• 15 climate-related proposals were submitted vs. six in 2023.
• 17 proposals addressing companies’ diversity and equity practices were filed vs. five in 2023. 

Social Proposals

More corporate political activity proposals went to a vote—but support remained low:

• 65 proposals went to a vote vs. 56 in 2023. Average support, however, dropped to 23% from 27%.

Proposals related to racial equity and civil rights audits plummeted:

• 15 proposals were filed vs. 39 in 2023—and those voted on fell to 7 from 25.
• Average support remained relatively low, ticking down to 13% from 14%.

Human Capital Proposals

Proposals on diversity-related issues, such as workplace and board diversity, increased:

• 48 proposals were filed and 31 were voted on vs. 43 and 18, respectively, in 2023.
• At the same time, average support decreased to 12%, down from 17% the previous year.

Gender and pay equity garnered more attention:

• 20 proposals were filed and 18 were voted on vs. 16 and 10, respectively, in 2023.
• Despite this rise in activity, average support for these proposals dropped to 23% from 33%.

Governance proposals

The sharpest rise in volume was in governance proposals:

• 264 governance proposals were filed vs. 225 in 2023.
• Fewer proposals went to a vote: 166 proposals were voted on vs. 191 in 2023. Average support rose to 39%, compared to 29% in 2023.

Success of governance proposals was driven by proposals relating to supermajority voting & special meetings:

• Significantly more proposals aimed at eliminating the supermajority voting requirement received majority support, with 31 proposals passing vs. 8 in 2023.
• Proposals advocating for companies to permit or ease the requirements for calling special meetings received higher average support, rising to 43% vs. 32% in 2023.

Environmental Proposals

Climate-related proposals remained largely the same:

• 98 proposals were filed and 56 voted on vs. 100 and 57 in 2023. Average support remained at 20%.

Proposals on plastic pollution increased—but their success rate plummeted:

• 15 proposals were filed and 10 were voted on this year vs. 11 and 7, respectively, in 2023.
• Average support dropped significantly to 14%, down from 25% in 2023.

The report was produced with ESGAUGE, Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance. Findings are based on shareholder proposals submitted at Russell 3000 companies between January 1 – June 30, 2024, and a Chatham House Rule discussion with governance professionals.

Commentary:

“Companies should be prepared to navigate an increasingly polarized social, environmental, and political environment. Proactively realigning business postures and actions—and the board’s oversight and governance of both—can help avoid costly and embarrassing missteps,” said Richard Fields, Head of the Board Effectiveness Practice at Russell Reynolds Associates.

“Companies should maintain an active offseason engagement program to foster strong investor relationships. This involves identifying and being transparent about any potential governance changes or issues, as well as continuously educating shareholders on existing governance practices and policies to prevent misunderstandings,” said Matteo Gatti, Professor of Law at Rutgers Law School.

“The lack of support around environmental and social proposals does not indicate that mainstream investors are merely yielding to external pressures or losing interest in these areas. Rather, it can be attributed to many of such proposals continuing to be overly prescriptive, costly to implement, lacking in economic value, and not company-specific,” said Umesh Chandra Tiwari, Executive Director of ESGAUGE.