Article Two - Why we should continue the conversation after this year's proxy voting season (2024)

Initial insights into this year's proxy voting season and reflections on why we should remain optimistic

INTRODUCTION

Considering that the majority of Annual General Meetings (AGMs) of public companies occur between March and August, many shareholders and organisations involved in voting activities view the 2024 proxy season as concluded by now (end of August). As a result, we are starting to see the initial reports from some of the largest asset managers, accompanied by commentary from organisations and media on annual outcomes. Undoubtedly, the ESG stewardship community is watching closely the publication of those results. 

INITIAL PROXY VOTING RESULTS

The initial disclosures indicate that a major highlight of this proxy voting season, at least in the United States (US), was the decline of the support for environmental (E) and social (S) shareholder resolutions (1) (2) (3). That decline in support for E+S shareholder resolutions appeared to be driven by the withdrawal from the worldwide largest asset managers, such as Vanguard and BlackRock (2). For instance, according to BlackRock's recent publication "2024 Global Voting Spotlight“, support to E+S shareholder proposals declined to 4.1% in 2024, compared to 6.7% of 2023 (4). As reported by BlackRock in the same publication, the three main reasons why environmental and social shareholder resolutions were not supported are, in order of relevance, (i) the invested company had process in place to address business risk, or (ii) the resolution was too prescriptive, or (iii) it lacked economic relevance (5).

A second key point of this year proxy season in the US was that, despite the growth in the number of ESG shareholder resolutions (which happens since 2021), this time: (a) the increase was at a slower pace and (b) was largely attributed to anti-ESG filers - i.e. those aiming to promote strongly conservative or net-zero-skeptical social policies. For instance, the number of resolutions proposed by anti-ESG filers rose to 87 in 2024, up from 48 in 2022, when they began to emerge in significant numbers (6).

INITIAL IMPRESSIONS

The early media remarks regarding this year's proxy voting season may, understandably, cause some alarm within the ESG stewardship community. In particular if we consider that this year's proxy season was overshadowed by the ExxonMobil's controversial lawsuit filed against shareholders who proposed a resolution demanding stricter climate targets, and which already raised concerns about the potential threat to shareholder rights (7).

Before this concerning sentiment evolves and causes ESG specialists, asset owners and managers, and the broader responsible investment community to feel skeptical and uncertain about others and their own stewardship efforts—potentially questioning the relevance and effectiveness of ESG stewardship as a catalyst to drive the needed change—I share below my reflections on why we should remain hopeful.

REASONS TO REMAIN OPTIMISTIC

Based on the initial voting results above mentioned, the following are some reasons to keep positive:

1. Even though the backing for E+S shareholder proposals fell, mainly due to the lack of support by the largest asset managers, there are indications that a dedicated significant group of smaller sustainability-focused asset managers continues to advocate for this set of resolutions (8).

   
   

2. Furthermore, although support for E+S shareholder proposals has decreased, this year's decline was less significant compared to the previous year (6).

   
   

3. Despite the increase in “anti-ESG” shareholder proposals in 2024, they continued to be unpopular among investors. For example, in 2024, these proposals averaged just 2% support, down from 9% two years earlier (6).

   
   

4. Different from the E+S proposals, this proxy season saw the resurgence of support for governance-related shareholder proposals, which is not necessarily bad, in particular if we consider that the governance topics were focused on board accountability and safeguarding shareholders rights (6), which can also influence the progress of companies' E+S agendas.

   
   

5. It's important to remember that most asset managers have not yet released their annual proxy voting results, and much of the available media commentary is focused on the AGMs of US companies and US asset managers. Other major asset managers continue to take the lead on sustainable investments.

   
   

   Furthermore, other general reasons pertinent to stewardship and responsible investment include:

   
   

6. While shareholder proposals are an important tool for investors to promote better environmental and social practices, and their support is considered a measure of success by ESG sponsors, they hold particular significance in the context of US AGMs. In many other jurisdictions, the filing of shareholder resolutions tends to be less frequent; thus, other indicators become more relevant for assessing the effectiveness of responsible shareholders voices in AGMs. These indicators include, among others, votes on items that hold executives and board members accountable for not addressing properly ESG issues.

   
   

7. Voting (including on shareholder proposals) is not the only stewardship tool for investors to influence the companies they are invested in. Engagement, defined as meaningful dialogue with the invested company aimed at promoting transparency and more sustainable practices, is increasingly acknowledged as a powerful strategy by responsible investors. Ideally, the most effective stewardship strategy would view voting at AGMs (and the proposal of shareholder resolutions) fully aligned with the engagement strategy, and as escalation measures available to investors after unsuccessful engagement efforts with the invested company.

   
   

8. Expanding on reason 7 above, voting is especially relevant if the investor holds equity stakes with voting rights in listed companies. However, very often investors's investments universe go beyond listed equities, to include fixed income, where engagement is key given the absence of voting rights, as well as private markets, where engagement and voting have unique considerations (that I'll explore in a separate article).

   
   
   
   

SOME RECOMMENDATIONS

Therefore, before drawing further conclusions from this initial media commentary on the results of the 2024 proxy voting season, some of my recommendations for those monitoring closely the topic include the following:

• await the proxy results from other major asset managers, especially those based outside the US.

  
  

• if you work with voting activities, focus not just on negative results; understand their causes and trends; learn from them and work on improving the narrative to prevent negative actions from influencing future trends.

  
  

• leverage the AGMs results to evaluate and enhance your stewardship framework and strategies, and your engagement and voting targets and milestones. Additionally, the period following the AGM is the ideal time to reach out to the invested companies and consider other escalation measures if needed, before the next year AGM.

  
  

• as an investor, request and assess if the annual proxy voting results of your asset managers are in line with their disclosed voting policies but also with your own responsible investment ambitions. Additionally, keep in mind that voting is only one component of their stewardship activities; ensure you properly assess other stewardship efforts of your asset managers, such as engagement with companies and policymakers.

  
  

• Despite some indications of ESG backlash, the responsible investment community continues to be robust and expanding, so let’s concentrate on the leading responsible asset owners and managers, and learn from and spread their experiences.

  
  

I'm looking forward to observe and learn more from further results of this year's proxy voting season.

Have you also reflected on the initial results and publications on this year's proxy voting season?

What other significant trends have you noticed, and what lessons have you learned and how do you plan to implement any changes?

What motivates you to maintain your commitments to ESG stewardship best practices?

Feel free to contact me if you'd like to continue the conversation!  

Juliana Barbosa,

Switzerland, 27 August 2024

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Notes:

(1) Lindsey Stewart, Morningstar, Inc., "The 2024 US proxy season: Which ESG proposals made the podium? LinkedIn, 17 August 2024. https://www.linkedin.com/pulse/2024-us-proxy-season-which-esg-proposals-made-podium-stewart-cfa-hajme

(2) Patrick Temple-West, "Proxy season results show support for ESG efforts continues to ebb", Financial Times, 05 July 2024. https://www.ft.com/content/1089ff59-47b9-41a2-83b1-98a205587b23

(3) Simon Jessop, "BlackRock support for ESG shareholder resolutions hits fresh low", Reuters, 22 August 2024. https://www.reuters.com/sustainability/blackrock-trims-support-some-esg-resolutions-agm-season-2024-08-21/.

(4) BlackRock, "2024 Global Voting Spotlight", https://www.blackrock.com/corporate/literature/publication/2024-investment-stewardship-voting-spotlight.pdf. The decline is even more significant if compared to voting season 2022-2021, when BlackRock's support was 47% (although the number of shareholder proposals was a bit lower too). BlackRock's refers to "climate and nature capital" as environmental resolutions, and "company impacts on people" as social resolutions.

(5) More details about BlackRock's reasons not to support environmental and social-related shareholder resolutions can be found at their "2024 Global Voting Spotlight" - link above (4), p. 53. figure 6.

(6) Lindsay Stewart, Morningstar, Inc, "The 2024 Proxy Season in 3 Charts", Harvard Law School Forum on Corporate Governance, 17 August 2024. https://corpgov.law.harvard.edu/2024/08/17/the-2024-proxy-season-in-3-charts/

(7) Paul Vernes, "Glass Lewis opposes Exxon lead director over climate proposal lawsuit", responsible investor, 13 May 2024. https://www.responsible-investor.com/glass-lewis-opposes-exxon-lead-director-over-climate-proposal-lawsuit/. According to this year CarbonMajors report "The Carbon Majors Database", ExxonMobil is the top 1 investor-owned company by emissions (page 16, table 6). https://carbonmajors.org/briefing/The-Carbon-Majors-Database-26913

(8) On his LinkedIn article (1) above, Lindsay from Morningstar assessed the volume of the E+S shareholder proposals support in the US according to 3 tiers:

According to this study, the growth of the Bronze tier over the last three years indicates that "remain a large number of asset managers with smaller stakes in US companies whose support for ESG resolutions has been less volatile than the very largest firms. This is important to know for sustainability-conscious investors picking a manager."

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