The 2022 proxy season is now underway with ESG shareholder proposals fast filling corporate inboxes on topics ranging from concealment clauses to stranded assets. As usual, companies are seeking the permission of the US Securities and Exchange Commission’s (SEC) to exclude many of them – something the powerful regulator was more amenable to allowing under the Trump Adminstration.
But tried and tested ‘no action’ arguments are likely to be less fruitful this year for companies, as the financial regulator under President Biden is a very different proposition.
Ahead of the 2022 proxy season, in November, the regulator underlined this with new guidance on its interpretation of rules often used by corporates to avoid ESG-focused shareholder proposals – particularly those calling for emission reduction goals – during the last administration. Following publication, US retail giant Costco abandoned its attempts to exclude a proposal asking it to adopt strict decarbonisation targets across its full value chain (Scopes 1,2 & 3).
Science-based emission target proposals have already been filed this year at Exxon, ConocoPhillips and Phillips66 this year by Dutch activist Follow This.
The 2022 proxy season looks set to be a fascinating one with more and increasingly progressive ESG proposals likely to go to the vote.
Civil rights and racial equity audits back again this year
Racial equity/civil rights audit proposals look set to feature heavily again this year, with resolutions already being filed at several US firms including tech giants Apple and Alphabet and oil major Chevron for 2022.
Apple included the resolution calling for an independent civil rights audit in its 2022 proxy statement last week, ahead of its annual general meeting in March where it will be put to a vote by shareholders.
The resolution was filed by US SRI investor Trillium Asset Management along with US union backed SEIU Capital Stewardship Program.
The duo along with SOC Investment Group – formerly CtW – were behind many of the similarly-focused racial equity audit proposals last year, which drew big support from shareholders, particularly for a first-time proposal.
Apple’s decision to include the proposal and not seek to exclude it via the SEC’s ‘no action’ process may have been informed by the regulator’s refusal last year to back attempts by financial giants like CitiGroup and JP Morgan Chase from avoiding those on racial equity audits.
The company is, however, recommending a vote against the resolution, arguing that the company already fulfils it.
“[O]ur current framework for the implementation and oversight of our human rights commitments is more effective than the broad and unfocused audit requested by the proposal,” Apple stated.
The filers argue that despite the tech giant committing $130 million to a racial justice initiative and promoting its gender and racial pay equity policy, an audit is required given “recent reports from Apple’s workforce about lack of gender pay equity, racial inequality, verbal abuse, sexual harassment and retaliation”.
In December, the US Department of Labor (DoL) confirmed to CNN that it had launched a whistleblower investigation into Apple. The DoL’s whistleblower protection program, administered by the Occupational Health and Safety Administration (OSHA), reportedly investigates cases of alleged retaliation by employers against workers who raise concerns about issues such as employee safety.
And last year, a group of Apple workers launched #AppleToo, a campaign to gather and share current and past employees’ experiences of inequity, intimidation and abuse.
In response to the investigation and workers’ campaign, Apple said at the time: “We are and have always been deeply committed to creating and maintaining a positive and inclusive workplace. We take all concerns seriously and we thoroughly investigate whenever a concern is raised and, out of respect for the privacy of any individuals involved, we do not discuss specific employee matters.”
“In 2021, proxy votes at many companies made it abundantly clear that civil rights audits are an important accountability mechanism that investors want to see companies implement,” said Jonas Kron, Chief Advocacy Officer at Trillium. “No matter how many policies a company has in place, no matter how good its intentions are, civil rights audits can identify blind spots and drive meaningful improvements for companies. Apple is no exception.”
Apple, which last week also became the first company to be valued at $3trn, has also been thwarted in its attempt to exclude proposals asking for it to report on its use of concealment clauses when it comes issues such as “harassment, discrimination and other unlawful acts”.
The SEC did not support the company’s argument that the proposal filed by Californian impact specialist Nia Impact Capital fell afoul of the rule around substantial implementation or micromanagement.
US ratings giant pushed on climate risks
One of the new proposals filed this year is at Moody’s and S&P, asking the US credit rating giants to report on the “feasibility” of increasing the assessment period of issuers beyond five years to better gauge climate risk exposure.
Moody’s is asked, for example, to report on the “feasibility of increasing the period of assessment to greater than five years when considering exposure to physical and transition risks associated with climate change for Moody's Investors Service (MIS) issuer credit ratings”. The resolution at S&P also includes reference to broader ESG risks.
The resolutions were filed by corporate governance specialist James McRitchie who is working with campaign group SumofUS.
The filers argue that the “short time scales” used by the credit ratings agencies mean that climate risks are being potentially overlooked. To illustrate this, both proposals highlight that the credit rating agencies only downgraded Pacific Gas & Electric Company (PG&E) after the 2019 Californian wildfires led to it filing for bankruptcy.
Moody’s and S&P are seeking to exclude the proposals from going to the vote via the SEC’s ‘no action’ process. Both argue that the resolution can be excluded because they have substantially implemented it and because fulfilling the proposal would also violate the securities law in the US.
Moody’s argues that the proposal is “based on a faulty premise” since it does not impose a five-year limit on ratings and is free to “provide for a period of assessment of greater than five years when considering exposure to physical and transition risks associated with climate change”.
It also added that adjusting its “credit ratings methodology based on the voting results of a shareholder proposal would be inconsistent with the extensive regulatory regime established by Congress and the Commission to preserve the independence and objectivity of the credit ratings process, and thus would violate Exchange Act Section 15E(q)(2)(F).”
Similar arguments were put forward by S&P in its bid to exclude the proposal.
Amazon and Comcast questioned about climate alignment of 401k plans
Another interesting new proposal has been filed at Amazon by US non-profit As You Sow, asking the online retail giant to report on how its 401k retirement plan aligns with its 2040 Net Zero pledge.
Last year, As You Sow published analysis of Amazon’s 401k plan and that of telecoms giant Comcast as part of its new Corporate 401(k) Sustainability Scorecard. That analysis revealed both firms’ schemes as having exposure to high-emitters and companies accused of contributing to deforestation.
As You Sow’s CEO Andrew Behar told RI that it intends to file the same proposal at Comcast this year too.
US corporate pension schemes are likely to face increased scrutiny if the proposed rule from the DoL is adopted. The regulator’s proposal, which was published last October, would remove significant Trump-era obstacles preventing US workplace pension schemes from considering ESG when investing, including using ESG funds for their default strategies.
Drug pricing and Covid-19
The challenging of pharmaceutical giants over their pricing of Covid-19 vaccines, which featured prominently last year, looks set continue, following the filing of a shareholder proposal by Legal & General Investment Management (LGIM) at Moderna last month. The UK-based investment heavyweight is calling on the US drug maker to disclose how its receipt of government financial support is or will be reflected in the price of Covid-19 vaccines and therapies.
A similar proposal has also been filed at Pfizer by US SRI investor Mercy Investment Services. Both Pfizer and Moderna are seeking to exclude the proposals, arguing that they have or will by the time of their annual meeting have substantially implemented the proposals.
The pharma giants are also seeking to exclude another proposal filed by NGO Oxfam America, asking them, separately, to consider the feasibility of “promptly” sharing the intellectual property and technical know-how behind Covid-19 vaccines with “qualified manufacturers located in low- and middle-income countries, as defined by the World Bank”.
Both Moderna and Pfizer are seeking to exclude the proposals on the basis that they fall foul of the SEC’s rule on ordinary business (Rule 14a-8(i)(7) b). Pfizer also argues that the proposal has already been substantially implemented.