Good morning,
With this year’s proxy season in the rearview mirror, EY’s Center for Board Matters analyzed voting trends among Fortune 100 company shareholders to see what could be gleaned about investor sentiment. It found that investors are getting much choosier about the environmental, social, and governance (ESG) issues they’re willing to support, even as the category continues to attract more shareholder proposals.
This year, shareholders submitted 296 proposals that fell under the broad umbrella of ESG, according to EY’s post-season report published earlier this month. That was slightly higher than last year’s total of 289 ESG propositions put forward at Fortune 100 companies, which itself represented a spike compared to 2021.
However, investor backing for ESG bids plummeted this proxy season. In 2022, 36% of ESG recommendations won approval from 50% or more of voters. This year, that was true for only 7% of such proposals. The share of ESG bids to win endorsement from at least 30% of voters—a key threshold for measuring investor approval—also dropped.
Is the anti-ESG movement the elephant in the room here? Was it responsible for this year’s voting outcomes?
Possibly, but to a limited degree, according to EY’s analysts. Among Fortune 100 companies, only 2% of anti-ESG proposals secured backing (more than 50% approval) this proxy season. However, the report authors also acknowledged that companies and investors are “balancing opposing pressures and increased scrutiny from different stakeholders” related to ESG matters. Against a highly polarized political backdrop, in other words, some investors are thinking twice about which causes they can champion without inviting a backlash.
Climate-focused proposals, which represented about one-third of ESG topics, were no exception to the overall trend. Even as we live through the hottest month in recorded history, shareholders supported only 22% of this year’s environment-related proposals, compared to 34% last year.
Kris Pederson, who leads EY’s Center for Board Matters and one of the authors of the report, says investors still view sustainability as critical to a company’s long-term survival. But they want targets to be closely aligned with a firm’s business strategy. Beverage companies certainly need to have water protection on their radar, for example, says Pederson, who adds that investors are asking: “What's material to the business?”
Many investors also withheld support for climate proposals because they believe companies are already making progress toward their stated goals, according to Pederson. And any proposal found to be overprescriptive was more likely to be rejected. For example, proposals that focused on cutting emissions across a company’s supply chain found a warmer reception than those that set specific deadlines for companies to phase out of fossil fuel projects, the report states. (Andrew Behar, CEO of leading shareholder activist group As You Sow, has also acknowledged that “tougher” proposals were a hard sell this year.)
It also matters who was behind this year’s climate proposals, according to Pederson—investors were asking whether a proposal’s sponsor had the best interest of long-term shareholders in mind. Shareholder activists who blanketed companies with single-issue propositions that were not tailored to suit a company’s goals saw their suggestions essentially “thrown out,” Pederson reports.
See the full report, which also unpacks voting patterns for executive pay packages and director reappointments, here.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
