ESG resolution round-up: Drop in support for Sasol’s climate approach

Exxon climate proposal 'practically dead' this year amid lawsuit; living wage and reproductive health proposals fail to get majority support at Walgreens.

More than one-fifth of Sasol’s shareholders voted against its climate management approach at the firm’s recent annual general meeting, representing a considerable drop in support from previous years.

The South African chemicals group’s AGM was originally held in November, but was abandoned after activists from climate organisations stormed the stage, holding signs with slogans including “Coal Kills” and voicing their discontent over the climate record of the company. They also shared testimonies from communities allegedly impacted by the firm’s plants.

Reconvened 19 January, the AGM was conducted virtually to avoid a repeat of the November disturbances. It saw 22 percent of shareholders vote against Sasol’s climate plan.

In 2022, the firm’s climate plan received support from around 92 percent of shareholders and in 2021 – the first year Sasol offered a non-binding advisory vote on its climate change approach – backing reached 95 percent.

Sasol has committed to achieve a 30 percent reduction in its greenhouse gas emissions by 2030. Robyn Hugo, director of climate change engagement at shareholder activism organisation Just Share, believes the drop in support indicates that “shareholders are increasingly unconvinced that it has a credible plan to do so”.

Echoing this, Robert Lewenson, head of responsible investment at Old Mutual Investment Group, told Responsible Investor that the investor was pleased that more shareholders voiced their dissatisfaction with the climate plan this year. 

Prior to the AGM, Old Mutual and fellow South Africa-based investor Ninety One pre-declared their intention to vote against Sasol’s decarbonisation pathway.

Old Mutual, which is on the engagement group for the company as part of Climate Action 100+, also announced plans to vote against Sasol’s remuneration report and the re-election of director Muriel Dube.

Nevertheless, Lewenson said the firm remains committed to engaging Sasol. “This latest AGM outcome emphasises the increasing need for the stewardship approach in driving change through the companies in which we invest.”

Views were split on the success of reconvening the AGM virtually.

Lewenson said it was “expedient for the company and fairly well-managed in the circumstances”. He added, however, that Old Mutual would encourage the return to a hybrid format “which in our view accords with best practice for conducting AGMs”.

By contrast, Hugo claimed there were various problems with how the AGM was conducted.

For example, she alleged that shareholders who appeared on video were cut off without being provided with an opportunity to state whether they had follow-up questions or comments.

“Instead, they were moved off the screen, and the next written question read out,” she said. “Various of these shareholders who appeared on video, including Just Share, were then forced to type their follow-up questions into the chat or get back into the queue for a video question.

“By the time the questions were read out or they had reached the front of the queue to ask a video question, the issue was no longer fresh in anyone’s minds.”

Responding to Hugo’s concerns, a spokesperson for Sasol told RI: “Sasol is comfortable that all shareholders were afforded the opportunity to effectively participate in the AGM and ask their questions in relation to the resolutions proposed. All shareholders had an opportunity to either pose verbal or written questions and all shareholders and directors had access to the platform to read the written questions posed and statements made.

“As indicated at the beginning of the meeting, in order to ensure shareholders had an opportunity to ask their questions, questions were taken in batches and all shareholders could ask follow-up questions at a later stage if they felt that they did not receive an adequate response.”

Exxon lawsuit signifies ‘breakdown’ in SEC shareholder process

The news broke this week that US oil major ExxonMobil had taken the unusual step of filing a lawsuit in Texas against proponents of a climate proposal in a bid to prevent it from being put to shareholders.

Dutch climate activist Follow This and US investor Arjuna Capital are the defendants in the case, but the US Securities and Exchange Commission is the real target, according to Con Hitchcock, a veteran US lawyer specialising in corporate and securities law.

“It’s plainly an attack on the broader shareholder proposal process,” he said. “If Exxon can win a court decision that reducing Scope 3 emissions is ordinary business, that is a sword that can be wielded by other companies against other proposals.”

Under US law, a company cannot sue the SEC, but can take legal action against the filer of a shareholder proposal. It can ask the court to agree that a proposal can be excluded from its proxy statement, essentially bypassing the regulator.

Typically, companies seeking to exclude shareholder proposals do so via the SEC’s “no action” process, whereby companies seek assurances from the financial watchdog that it will not pursue the matter if the company omits a resolution from the agenda of its annual shareholder meeting.

But the opinion given by the SEC is informal and non-binding. “Only a court can determine whether a company may legally exclude the shareholder proposal from its proxy materials,” the SEC states in guidance on the process.

Exxon’s novel lawsuit represents a “breakdown of the process”, Hitchcock said.

Rule 14a-8 – which sets out the SEC’s rules around “no action” – has been described as the “rule everyone loves to hate”, Hitchcock told RI. “Companies don’t like it, proponents don’t like it, usually for opposite reasons.”

Despite this, he said the system works well “because both sides generally view the SEC as an honest broker”.

Recent proxy seasons, however, have seen record-breaking numbers of environmental and social shareholder proposals filed and making it through the SEC. This has increasingly drawn the anger of right-wing critics and companies, making the SEC’s “no action” process a new front in the war on ESG.

In April, the right-wing National Center for Public Policy Research filed a lawsuit against the SEC challenging its authority to adjudicate on shareholder proposals. A month later, the National Association of Manufacturers joined it.

But the recent abundance of ESG proposals is in stark contrast to the lean years during President Trump’s administration, which saw the SEC increasingly allow companies to exclude shareholder proposals on ESG issues – particularly emissions reduction targets – through its “no action” process.

“It’s no secret that Exxon has been disappointed, shall we say, with the SEC’s willingness to allow climate proposals on the proxy as well as the number of proposals,” Hitchcock said.

With the lawsuit Exxon is trying to send a message, he added, pointing to the “all-star team of conservative lawyers” behind the complaint.

Lawsuit ushers ‘new phase’

Historically, it has been more common for a filer of a proposal to go to court to force a firm to table it after a negative ruling by the SEC. Hitchcock himself has been involved in such actions, including at Walmart in the 1990s on anti-discrimination policies.

It is far rarer for a company to sue an investor, Hitchcock said, describing it as a “new phase”.

But there are examples. Corporate governance gadflies John Chevedden and Jim McRitchie, for instance, were unsuccessfully sued by EMC – now Dell EMC – in Boston over their attempt to get the company to split the chairman and chief executive roles in 2014.

“So it has happened before – and based on the limited evidence, it does reflect a certain frustration with the shareholder proposal process,” Hitchcock said.

Despite regular complaints, he added, “for many decades, both sides trusted the process”.

Implications of the case

The impact of the lawsuit will depend on how broadly the court rules, Hitchcock said.

“If the court says, ‘Exxon is in the oil and gas business and many topics related to the production of oil and gas are ordinary business’, that would be an extraordinary expansion of the ordinary business exemption,” Hitchcock said.

Such a decision would give corporations a tool to try to knock out proposals. But if the Texan court sides with the filers of the proposal, essentially nothing would change.

One thing is certain – the proposal at Exxon is practically dead for this year.

“Even if the trial judge says Exxon is wrong and this has to go in the proxy, the company could appeal to the Court of Appeals for the Fifth Circuit, and they would get a stay pending appeal,” Hitchcock said.

“There are legal manoeuvres that make it unlikely to a point of near certainty that there will not be a vote this year.”

A spokesperson for Exxon told RI that the “breakdown of the shareholder proposal process, one that allows proponents to advance their agendas through a flood of proposals, does not serve the interests of investors”.

“We are simply asking the court to apply the SEC’s proxy rules as written to stop this abuse and eliminate the significant resources required to address them,” they added.

Walgreens AGM

Two social-focused shareholder proposals at Walgreens failed to get majority support – although exact results have not yet been published.

The first – filed by the Presbyterian Church (USA) – asked the pharmacy chain to provide a public report on any known and potential risks and costs caused by enacted or proposed state and federal laws regarding mifepristone and other reproductive health medications.

In the filing, the proposal claimed Walgreens’ policy regarding mifepristone – a medication prescribed for miscarriage management or to induce abortion in combination with the drug misoprostol – is “confusing and unclear to customers, the medical community, shareholders and other stakeholders”.

The resolution followed controversy regarding how the chain responded to a letter from Republican attorneys general about selling it.

Walgreens responded in its proxy statement that it has been consistent on its position, “which is to dispense mifepristone where it is legal to do so”.

Influential proxy advisory Glass Lewis recommended against the vote. It said that, while understanding the risks presented by how the company navigates issues related to reproductive healthcare, “we are not convinced that adoption of this proposal would serve to mitigate these risks”.

Katie Carter, director of faith-based investing and shareholder engagement for Presbyterian Church (USA), told RI: “The vote is an indication that shareholders may not be scrutinising the company’s contradictory statements as closely as we have.

“While shareholders may believe the problem is resolved, that doesn’t change the fact that the company has still not indicated how it intends to manage the risks and uncertainties of a changing legal landscape. We expect that more clarity would be of interest to investors, no matter where they stand on the issue.”

The second proposal, filed by The Shareholder Commons, called on Walgreens to establish company wage policies “that are reasonably designed to provide workers with the minimum earnings necessary to meet a family’s basic needs”.

Again, Glass Lewis recommended against the vote, claiming it was “not convinced that shareholders should dictate operational matters, such as the wages paid to the company’s employee”.

Sara Murphy, chief strategy officer at The Shareholder Commons, told RI: “While we’re waiting to learn the outcome of this one proposal, we know investors are increasingly realising that their clients and beneficiaries pay the price when portfolio companies underpay their workers.

“A growing body of asset owners and managers understand that stewardship for a living wage is a necessary element of diversified portfolio value optimisation.”

The non-profit has filed the same proposal at Walmart, Kroger and Target.