Shareholder proposals on ESG issues hit record numbers during the recent proxy season. So did anti-ESG resolutions, as Republican states push back on corporate responsibility for environmental, governance and social topics.
Shareholders of Securities and Exchange Commission-reporting companies filed more than 542 resolutions on ESG issues in the season, which generally runs in the first months of the year, according to a report by shareholder activist nonprofit As You Sow, the ESG research nonprofit Sustainable Investments Institute and Proxy Impact, a firm that provides shareholder engagement and proxy voting services on ESG. That record number is on track to match or exceed last year's total of 627 resolutions, the
At the same time, anti-ESG proposals also spiked: There were at least 40 by mid-February, up from 27 at the same time in 2022. The increase suggests that last year's surge will be surpassed, the report said.
"Complex environmental and social challenges are not going away just because they prompt controversy," Heidi Welsh, the executive director of the Sustainable Investments Institute and a co-author of the report, said in a statement. "Proxy season will give companies feedback on reform ideas, but there's no indication attacks on ESG investing are going to dampen investor appetite for facts and disclosure, which make the capital markets work better."
Backlash
Republican legislators are
The political pushback often focuses on climate change and fossil fuel companies. But the recent crop of anti-ESG proposals mainly concerns social policy, from actions by companies against diversity, equity and inclusion initiatives to content moderation at big technology companies.
Still, investor support for these proposals remains low, at an average of 3.5% in 2022, according to the Proxy Preview.
"A lot of these things are performative," said Alison Taylor, a clinical professor at NYU Stern School of Business and executive director at Ethical Systems, a nonprofit research group. "They're designed to make noise rather than drive actual change."
According to Taylor, anti-ESG proposals are not going away and should continue up until the 2024 election. The clamor around social policies, she said, has emerged because environmental issues are easier to measure and quantify, while corporate social responsibilities are more debatable.
"Companies certainly face contradictory pressures, but they're just going to have to navigate through and get a lot more rigorous on which ESG issues drive value creation and which don't," she said.
Social policy proposals represented half of all ESG shareholder resolutions filed by shareholders of U.S.companies as of mid-February. The fillings are mainly on fair pay, working conditions and benefits, and gender and racial pay disparities. Proposals related to reproductive health are also up to over 20 in total. The jump came after the Supreme Court overturned Roe v. Wade last year, which led to several Republican states to push laws restricting access to abortion.
Climate change-related and other environmental proposals accounted for about 30% of the recent resolutions, and the number is expected to increase this year, according to the report. The proposals remain focused on asking companies to better disclose their carbon emissions and targets.
At the same time, ESG popularity among investors is declining. Shareholder resolutions asking Citigroup and Bank of America to develop fossil-fuel phase out plans
The decline follows a trend that started last year. The number of environmental demands by shareholders in 2022 globally increased by 81% to 292, compared to 161 throughout 2021. But only 11.5% were at least partially successful, compared to 25.8% a year earlier, according to Insightia's 2022 ESG Activism
That was the argument used by BlackRock when explaining why its support on ESG shareholder proposals in the U.S. fell from 43% in 2021 to 24% last year. In a
"ESG activism is suffering a crisis of confidence, beset by declining support, confusion about valuation, and a budding conservative backlash," wrote Jason Booth, the editor of Insightia's report.
According to the Proxy Preview report, proposals last year "drove some more aggressive requests that seemed to push the envelope too much for some investors", pushing down the average support by about 10 points.
Taylor said there's more caution among investors and company leaders on ESG who are worried about greenwashing and political retaliation.
"There was a bit of a tendency to say that ESG was going to solve all our problems," she said. "Now, we're in a much more contentious and cautious era that ought to drive a lot more rigor and a lot more clarity over what ESG measures actually drive from what is just marketing."
Last year, the SEC proposed a rule to require companies to disclose annually how they are measuring and managing climate-related financial risks. The goal is not only to enforce disclosure, but also create a standard and more consistent information across companies.
In 2022, 88.6% of companies of the Russell 1000 index disclosed board oversight of environmental and social issues — up from 31% last year and a 37% increase from 2020, according to a
"Every company faces material ESG-related risks, and that a failure to mitigate these risks, or fully allow shareholders to understand these risks as they are making their investment decisions, has the potential to result in loss of shareholder value," the report said.
