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Jun 26, 2020

ESG proposals rejected but make inroads at Delta AGM

Proposals on climate-change lobbying and political contributions gained 45+ percent support

Two first-time ESG shareholder proposals – while not being approved – secured significant levels of support at Delta Air Lines’ recent AGM, as momentum continues for environmental and social measures at US companies.

A proposal requesting that the company release a report on its political contributions received the backing of 46 percent of the votes cast. Similarly, 45.9 percent of the votes cast supported a proposal requesting that Delta issue a climate-lobbying report.

Governance professionals generally regard such levels of support for shareholder proposals as noteworthy. Glass Lewis states in its 2020 guidelines that ‘any time 20 percent or more of shareholders vote contrary to the recommendation of management, the board should, depending on the issue, demonstrate some level of responsiveness to address the concerns of shareholders.’

BNP Paribas Asset Management brought the proposal requesting a report on climate change-related lobbying. Adam Kanzer, head of stewardship for the Americas at BNP Paribas Asset Management, tells Corporate Secretary in a statement that the firm is in talks with Delta about the proposal and expects those discussions to continue.

‘We hope this strong result has demonstrated to Delta’s board and senior management that our concerns about lobbying that is misaligned with the Paris [Climate Agreement] goals are widely shared among their investors,’ he says. ‘We are also bringing these ideas to other companies and other investors. These vote results – for a first-time proposal – demonstrate that the bar for corporate-lobbying disclosures and for systemic-risk management has been raised.’

Kanzer says BNP Paribas Asset Management drafted and filed the proposal with ExxonMobil, Chevron and United Airlines in addition to Delta. The proposal was approved with 54 percent of votes cast at Chevron’s AGM last month and secured 31 percent of the votes cast at United Airlines’ shareholder meeting, also in late May.

More than 14 major European companies have so far agreed to publish reports evaluating the alignment of their trade associations with the Paris Climate Agreement, Kanzer adds.

Specifically, the proposal requests a report on: ‘[I]f, and how, [the company’s] lobbying activities (direct and through trade associations) align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris Climate Agreement’s goal). The report should also address the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.’

In a supporting statement, BNP Paribas Asset Management commended Delta for responding to CDP’s annual climate-change survey but argued that corporate-lobbying activities that are inconsistent with meeting the Paris Agreement’s goals pose regulatory, reputational and legal risks to investors.

Such lobbying also presents systemic risks to economies, as delaying implementation of the Paris Agreement increases the physical risks of climate change, threatens economic stability and introduces uncertainty and volatility into investment portfolios, the investor argued.

In response, Delta’s board urged shareholders to vote against the proposal, arguing that the company’s lobbying efforts are ‘clearly aligned with responsible climate action, including the reduction of carbon emissions from aviation.’ It added that the company has said it will commit $1 billion over the next decade toward becoming carbon-neutral.

Friends Fiduciary Corporation (FFC) brought the political contributions proposal. Kate Monahan, shareholder engagement manager with FCC, tells Corporate Secretary that one of the reasons for adopting releasing a report is to help manage reputational risk, not least during a time of crisis. 

She welcomes the 46 percent level of support for the proposal among votes cast at Delta’s AGM and notes that Centene shareholders in late April approved a similar proposal, also brought by FCC. The group has held ‘productive’ talks with Delta, expects to continue those later in the year and appreciates the airline’s commitment to engagement, Monahan says.

Specifically, the proposal filed with Delta requested that the company issue a report, updated semi-annually, disclosing the airline’s ‘[p]olicies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to: (a) participate or intervene in any campaign on behalf of (or in opposition to) any candidate for public office; or (b) influence the general public, or any segment thereof, with respect to an election or referendum.’ FCC noted that the proposal does not include lobbying spending.

In its supporting statement, FCC said that, as long-term shareholders of Delta, ‘we support transparency and accountability in corporate electoral spending’ and that ‘disclosure is in the best interest of the company and its shareholders.’

Publicly available data does not offer a comprehensive story of the company’s electoral spending, FCC argued, adding that Delta’s payments to trade associations that may be used for election-related activities are not disclosed and are unknown.

In urging shareholders to reject the proposal, Delta’s board said engagement in the legislative and regulatory process is key to the company’s success and in the best interests of shareholders because the airline is subject to regulations in the US and abroad. Its ‘participation in the political process is subject to appropriate oversight to ensure compliance with applicable laws,’ the board said, adding that the report requested in the proposal is ‘unnecessary and redundant.’

It argued that the company ‘already provides information publicly about its participation in the political process but believes that providing all of the information requested by the proponent would be detrimental to Delta and its shareholders.’

A Delta spokesperson says in a statement: ‘The company is regularly engaged with its shareholders including those that have submitted proposals. Our practices with respect to shareholder engagement will continue.’

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...