Campaign spending, COP21 influence shareholder resolutions: Proxy Preview

The findings from the annual preview of US proxy voting season

Introducing the annual Proxy Preview webinar, Andrew Behar, CEO of As You Sow, the US advocacy group, that said that the biggest influences on shareholder resolutions was unbridled campaign spending and the COP21 climate talks in Paris.
One of the new initiatives that is certainly a consequence of COP21 is one coordinated by 20 investors, including AP4 and AP7 (two of the Swedish National Pension Funds) and a consortium of SRI and faith-based investors, US public funds, unions and foundations, co-filing resolutions at four US oil majors focused on company support for trade association lobbying or public policy advocacy groups which are opposing climate regulations.
According to the preview, shareholder resolution numbers have dropped back slightly this year. According to Si2 research, a total of 370 resolutions had been filed as of February 15, down from the high of 433 resolutions at the same point last year and 417 in 2014. These numbers exclude 72 proxy access proposals filed by the New York City Comptroller’s office. According to Heidi Welsh of Si2, this decline is likely due to a recent increase in shareholder engagement, but also many non-discrimination policies and sustainability reports have been adopted so the numbers of these resolutions have dropped dramatically. These two items, however, noted Welsh, were easy to implement. Retooling your business for a low-carbon economy takes more effort, she added, and those battles will therefore take more time and effort. Also down are successful No Action challenges, where a company challenges the inclusion of a resolution on its proxy, down to 71 from 113. Because of the number of withdrawals, added Welsh, figures might even drop back a bit further.
There has been a significant increase in climate change proposals, aimed at not just fossil fuel producers but also users. For example, there is a whole set of proposals filed at retailers. Most of these proposals concern reporting on climate change policy or strategy, but also on hydraulic fracturing, greenhouse gas (GHG) emissions, methane and on setting renewable energy use targets.
The preview is noteworthy in its discussion of withdrawn proposals. Walden withdrew at ConocoPhillips after the company agreed to update carbon asset risk information in its 2015 sustainability report and “to continue dialogue with proponents about climate change and to consider how to present information about its different climate change scenario assessments.” Trillium Asset Management withdrew a methane reduction target proposal at EOG Resources this year after the company agreed to “disclose its methane emissions rate and its leak, detection and repair rates, and to discuss these issues in its 2016 proxy materials.” Trillium also withdrew a resolution at healthcare company Hologic when it agreed to set GHG emissions reduction goals for its products and operations. Tim Smith of Walden Asset Management reported during the webinar that 60 per cent of Fortune 100 companies already have some kind of GHG reduction or clean energy principle.As far as social issues go, the Whole Foods resolution on food waste was described as “ground breaking” and success will hopefully lead to many more such resolutions. Trillium’s resolution asks it for a report “on company-wide efforts (above and beyond its existing reporting) to assess, disclose, reduce and optimally manage food waste.”
Many mutual funds simply do not vote on social resolutions. A consequence of mutual fund abstaining is that many of these end up as “no votes” because of the way some companies tally their votes. There is a campaign of resolutions from Bruce Herbert of Investor Voice to prevent abstentions from being counted at all.
Walmart’s decision to disclose state level political spending may be hugely influential, though we have seen the limitations to that. This year there are close to 100 political activity proposals. A total of 98 resolutions have been filed so far, compared with 113 in mid-February 2015 and 126 at the same point the previous year. In among these there are some very specific lobbying proposals focussed on issues such as overpriced pharmaceuticals. And resolutions often reflect a blend of concerns not just a single issue. At utility Pinnacle West, for example, As You Sow has filed a resolution that combines concerns about renewable energy and corporate political activity. The preview notes that the CPA/Zicklin Index shows around 150 companies in the S&P 500 are already disclosing spending on political activity.

Heidi Welsh said that “the LGBT battle is won” though there are still some resolutions on non-discrimination policies, but very few compared to previous years. Other social issues covered include gender diversity, fair pay/minimum wage, conflict zones, human trafficking and human rights.
Also among new resolutions is one on government service golden parachutes from union fund AFLCIO. This calls for companies to “adopt a policy prohibiting the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government”. Three resolutions were filed at Bank of America, Morgan Stanley and Citigroup. Another new resolution comes from As You Sow, filed at three drug companies: AbbVie, Merck and Johnson & Johnson. The resolution seeks to “apply the principles of recycling to prescription drug take-back challenges”. They also aim to address environmental hazards associated with improper drug disposal.
With regard to board diversity, Welsh reported that lots of agreements with companies are expected from a campaign by the 30% Coalition. For example, NorthStar Asset Management has withdrawn a resolution at retailer Costco Wholesale that called for a new board diversity policy. Costco has agreed to add language about gender, racial and ethnic diversity to board candidate searches.
Other governance campaigns seek to link executive pay to sustainability metrics, for example at Chevron and JPMorgan; there are 11 resolutions on this issue this year from a variety of filers.
As Tim Smith noted in the webinar: “The proxy process matters. It’s not a magic wand to change company practices, but it still works. It is particularly effective when it is part of a broad social campaign with a diverse group of stakeholders.”