Environmental, Social & Governance Briefs

As we’re approaching the 26th Annual United Nations Climate Change Conference, we’ve taken a closer look at climate and other environmental shareholder proposals in 2021 – and what we might expect next year.

We’re tracking and reporting on these – and other – shareholder voting trends at Russell 3000 firms in partnership with ESG data analytics firm ESGAUGE, leadership advisory and search firm Russell Reynolds Associates, and Rutgers University’s Center for Corporate Law and Governance.

 

Here are some of the key observations about environmental proposals in 2021:

• The number of environmental proposals filed and voted on increased this year. The number of environmental proposals filed in the first half of 2021 remained steady compared to the same period in 2020 (80 versus 79, respectively). The number of such proposals voted on increased in 2021 compared to 2020 (from 19 in 2020 to 28 in 2021), but it remains lower than environmental proposals filed (126) and voted on (42) in 2018.

• An even higher percentage of environmental proposals focused on climate this year. In the first half of 2021, 76 percent of all filed, and 82 percent of all voted, environmental proposals focused on climate, up from 65 percent of filed and 63 percent of voted proposals in 2020. 

• New in 2021 was the say-on-climate shareholder proposal (not to confuse with the say-on-climate management proposal), generally asking companies to publish a climate action plan and to put it to an annual non-binding shareholder vote. Five of such proposals were filed and four were voted on. Proposals on plastic pollution were up modestly, from 11 filed and 2 voted in 2020, to 12 filed and 3 voted in 2021.

• Support for environmental proposals (including climate-related proposals) that came to a vote in the first half of 2021 reached record levels. Support for such proposals averaged 37 percent compared to 30 percent in 2020. Additionally, eight out of 28 voted environmental proposals (or 29 percent) received majority support, compared to 3 out of 19 proposals (16 percent) in 2020. And proposals on plastic pollution and environmental (other than climate-relating) reporting received majority support for the first time.

• Unlike human capital management proposals (see October 8th blog post), companies and proponents were less able to reach a negotiated compromise on environmental proposals this year compared to 2020: 35 percent of filed environmental proposals came to a vote, compared to 24 percent in 2020. Compromise was especially difficult to achieve on say-on-climate proposals, with 80 percent of proposals coming to a vote (4 out of 5). 

• While companies of all types are being subjected to more scrutiny for their environmental records, there is still a strong connection between the type of shareholder proposal and the company’s underlying business. Like last year, over half of climate-related proposals filed (55 percent in 2021 and 60 percent in 2020) and voted (74 percent in 2021 versus 62 percent in 2020) were with companies in the energy, industrials, and utilities sectors. Successful proposals at those companies aimed at the reduction of Scope 3 emissions and reporting on the Net Zero 2050 scenario. Similarly, companies in the consumer staples, materials, and consumer discretionary sectors received all the 2021 proposals filed and voted on relating to plastic pollution.

What does it mean for 2022?

Companies should anticipate a sustained push, not only on climate issues but also on broader environmental topics, including plastic pollution and deforestation, through engagement and shareholder proposals. The number of say-on-climate proposals will likely increase, given the relatively strong support for such proposals this year.

Shareholder activism will continue beyond shareholder proposals, especially after the successful proxy fight against ExxonMobil. Other tactics, such as vote-no campaigns against directors, are also likely to increase in volume as a result of proxy advisors and investors updating their proxy voting guidelines and policies this year to hold directors accountable for ESG oversight failures.

In order to avoid shareholder activism on these issues, CEOs and their boards may want to consider: (1) providing more detailed disclosure of the company's GHG emissions governance, strategy, risk mitigation efforts, including a capital expenditure program in line with its GHG reduction targets; and (2) demonstrating that the company is enhancing performance and its disclosure (even if it is not yet in line with peers or with Paris Agreement goals).

If you’d like to learn more about specific environmental proposals and their outcomes or drill down on other vote results, I encourage you to sign up for a demo of the ESG Advantage Shareholder Voting Screening Tool. It lets you generate customized reports on shareholder and management proposals based on topic, proponent, outcome, and company from 2018 through the current proxy season in the full Russell 3000. Best of all, with a single click, you can see the text of the proposal and the vote results — no need to navigate multiple filings or databases.