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Nov 01, 2022

Institutional investor support for ESG proposals drops in 2022

Number of E&S shareholder proposals in US spikes by more than 130 percent

Amid a sharp rise in ESG shareholder proposals at US companies, a new report finds that average support for environmental proposals dropped to 33.8 percent this proxy season from 44.3 percent last year.

Research from Insightia reveals that BlackRock’s support for environmental proposals fell by 4.4 percentage points to 20 percent this year, compared with 31 percent last year. Its support for social proposals recorded a drop of more than 15 percentage points, down to 19.2 percent in the 2022 proxy season.

Vanguard supported more than 13 percent of environmental proposals in 2022, down from 19 percent last year. Its support for social proposals almost halved, hitting just above 10 percent in 2022.

State Street saw a slightly different picture: it marginally increased support for environmental proposals while its support for social proposals fell from 34.1 percent in 2021 to 23.9 percent this proxy season.

The foreword to the Proxy Voting Annual Review from Insightia, a Diligent brand, suggests this proxy season was one of ‘uncertainty and instability’. But Insightia’s editor-in-chief Josh Black says the findings should not overshadow more positive aspects of this proxy season.

‘The overall landscape shouldn’t distract from some of the more successful shareholder initiatives, including environmental proposals gathering steam in the consumer sector, the progress of racial equity audits and the continued march of political lobbying disclosure demands,’ he tells Corporate Secretary sister publication IR Magazine.

When asked whether this year’s results are indicative of a trend that could continue into the next proxy season, Black says: ‘I think it’s more likely that 2022 functions as a transitional year and that ESG proposals make progress next year. But the Big Three will continue to feel the pressure of being in the middle of pension funds from conservative and liberal states, which could accelerate pass-through voting and more dispersion of support.’

Josh Black

The report highlights that the US experienced a 133 percent increase in the number of environmental and social shareholder proposals filed with companies this season, largely due to the SEC’s amendments to its no-action letter guidance last year.

‘The SEC opened the floodgates to a wider variety of proposals, including some that would potentially have been excluded before reaching the proxy in previous seasons,’ Black comments.

Certainly, some investors have criticized proposals for being overly prescriptive. Annual meetings taking place during the height of the energy crisis and the early onset of the political backlash against ESG may also have made investors more reluctant to back proposals, particularly in the energy sector where support was so high in 2021.’

The report also points out that the increasing number of proposals raised questions on ‘the quality of their targeting’. As a result, institutional investors felt the urge to shift their focus to directors who must either be up to date with ESG issues their company is facing or ‘risk being unseated’.

Looking at the G in ESG, the research paints a different picture. In the US during the 2021/2022 proxy season, more than 40 percent of almost 170 shareholder governance proposals were supported.

Results are similar in Europe where a significantly smaller number of proposals (13) were put forward by companies based in the region, of which 40 percent were supported.

Companies in Asia recorded the highest number of shareholder governance proposals – 83 – with the highest average support at 82.7 percent.