Despite support for ESG proposals declining this season, companies are making “significant progress” in advancing their ESG reporting, according to BlackRock’s proxy season review.
Progress In ESG Reporting
BlackRock Investment Stewardship’s (BIS) 2022 voting spotlight report provides readers with a surprisingly positive outlook on the recent season, claiming that, on the whole, issuers are “demonstrating remarkable resilience [and] evolving their businesses to manage risks and capture opportunities.”
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Issuers "demonstrated marked progress in climate disclosures and targets during the last two years," resulting in the fund manager opposing just 176 directors due to sustainability concerns globally, compared to 254 the previous season, it said.
After citing pay for performance misalignment being a major concern last season, BlackRock noted this year that companies also made efforts to "better explain how their policies and pay outcomes are tied to strategy and long-term financial performance." This was especially evident in Europe, the Middle East, and Africa (EMEA), the fund manager said, in part due to the wider adoption of the EU Shareholder Rights Directive II (SRD II).
"We believe engagement and voting by investors has played an important role in encouraging this progress," the report reads.
This welcome announcement highlights that companies are becoming increasingly receptive to ESG-related demands, despite the mixed reception E&S proposals have received from investors this season.
This has also been reflected in the growing number of issuers endorsing E&S shareholder proposals. Boeing Co (NYSE:BA), Chevron Corporation (NYSE:CVX), and Caterpillar Inc. (NYSE:CAT) are among several companies to have endorsed environmental proposals this season, despite being historically resistant to engagements of this kind.
More issuers are also reaching withdrawal agreements with proposal proponents, conscious that proposals on hot topics such as emissions and diversity reporting will likely win majority support, while European and Australian issuers alike have voluntarily come forward to provide investors with advisory votes on their climate transition strategies.
"Companies are more readily engaging with shareholders and understanding their perspectives, which is a big change compared to five years ago," Maria Moats, governance center insights leader at PwC told me in an interview.
The 2021 proxy season, particularly the record-breaking support E&S proposals won, forced issuers to make addressing investor demands a priority. Shareholders are now all too willing to take voting action against companies that fail to address their ESG shortcomings.
Withdrawal Agreements
Looking ahead, we may find that more successful campaigns from institutional investors take the form of withdrawal agreements or private engagements, rather than public fights for majority support at shareholder meetings.
In a discussion with Green Century Capital Management at the start of the season, spurred by the impressive number of withdrawal agreements it was reaching with issuers, Shareholder Advocate Andrea Ranger told Insightia that she welcomes the increase in withdrawal agreements, as they demonstrate how issuers are "readily willing" to engage with shareholders without the need for a majority vote.
"We are on the cusp of systemic economic transformation. Investors feel the momentum, and so do company executives," said As You Sow CEO Andrew Behar in the responsible investment organization's recent Proxy Preview report. "Companies that will not adopt and implement a climate transition plan; refuse to disclose and act on diversity, equity, and inclusion; and will not implement the tenets of stakeholder capitalism will not win the loyalty of their customers and shareholders."
-- Rebecca Sherratt, Publications Editor, Diligent, Formerly Insightia.
