ESG advocates cite success in proxy fights amid political backlash

Despite lower levels of shareholder support for ESG-related proxy votes in 2023 amid a political backlash, sustainable investing advocates say their efforts are paying off.

Shareholder support for ESG proxy votes fell to 21.6% at publicly traded firms' annual meetings this year from a record 33.3% in 2021, according to a presentation by Heidi Welsh, the founding executive director of the nonprofit Sustainable Investments Institute, at a July 27 webinar held by shareholder advocacy groups and research firms. The number of ESG proposals receiving majority votes dropped to just eight from around 40 each of the past two years, she noted. Anti-ESG proposals garnered just 2.4% of shareholders for a wave of new proposals, though.  

Within those notable findings, Welsh and other speakers pointed out that at least 223 ESG resolutions were withdrawn without a vote after active engagement through meetings with management. In most of those cases, companies agreed to make changes relating to disclosure and reduction of risks on the climate, diversity, equity and inclusion and political lobbying.

"They primarily happen when we're asking for something that makes business sense. They primarily happen when it's the right thing for the company to do for the long term of the business. That's when they're most likely to happen," said Meredith Benton, founder of ESG research firm Whistle Stop Capital. "We naturally are going to see lower votes this year, because withdrawals are happening on those topics where high votes were most likely to occur."

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Companies find themselves navigating proposals by ESG adherents and their newly vocal opponents. Public company shareholders voted on a record 682 proposals between January and the middle of May — a 14% increase from the number in 2020, driven in part by "the rise of anti-ESG shareholder resolutions" that have jumped by more than 400% since 2020, according to proxy advisor ISS Corporate Solutions. After about six more weeks of voting, the total has reached 889 proposals, the law firm Gibson Dunn said in a report this week. 

Opponents of ESG are taking their arguments to political campaigns, testing them in the investment marketplace and putting their own pressure on the stakeholder process through proposals and a letter from state attorneys general in March to 53 of the largest fund managers. The ESG adherents plan to keep fighting back against what they view as misinformation while redoubling efforts relating to the environment, politics and board and workforce representation.

"Companies are really in the crosshairs from their critics from both the left and the right," Welsh said. "While they are getting a lot of flak about being too woke from some folks, the facts show that they actually spend a lot more at the state level in statehouses dominated by Republicans. They contribute consistently to politicians who have banned abortion, restricted queer rights and made it harder to vote, and climate denial is part of that package. These are not values that are shared widely by the capital markets' main players. And that is, I think you have to say, a radical agenda, and it is not shared by those in the capital markets."

Nonprofit shareholder advocacy group As You Sow prompted "some company action" in 72% of its more than 200 engagements with firms, and 92% of its proposals received enough support to meet the threshold for resubmission next year, according to CEO Andy Behar, who described 2023 as a "very successful" year. As You Sow launched a new website this week, investingesg.org, compiling the business and investment case for ESG. Political attacks and the expansion of As You Sow's outreach both help explain the lower shareholder votes, Behar said.

"Every company needs to address climate change in some way or another. They need a plan," Behar said. "And so we're starting to talk to companies who may never have seen a resolution before. There's a learning curve there as we meet with the executives and really get them to understand that we're there for their benefit and to help them to sort out a risk and how to address the risk in the best way for all stakeholders." 

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Environmental proposals in particular received dramatically lower support from shareholders as part of what Behar described as a trend toward "greenhushing." Support for climate-related proposals tumbled to 21.8% from a high of 53% in 2021, according to Welsh's analysis. At the same time, a record 69 proposed shareholder resolutions were withdrawn in 2023, according to Michael Passoff, CEO of ESG shareholder engagement and proxy voting firm Proxy Impact. 

"That number is likely matched by other ongoing corporate dialogues that do not even have a resolution filed," Passoff said. "So companies are still moving forward on climate issues. And there are an increasing number of companies signing up to work on science-based projects, science-based target initiatives. And the fact that there are increasing extreme weather incidents altogether — you can be sure that shareholder concern over climate risk will only increase."