Meaningful commitment or empty ambition: When is it right to withdraw a shareholder proposal?

Companies dislike shareholder resolutions.

“We hear from most companies that they would prefer just to discuss these issues with us without proposals”, says Danielle Fugere, President of US non-profit, As You Sow.

The prospect of an embarrassing public vote can sometimes be enough to nudge them into more meaningful engagement, in a bid to get proposals withdrawn. Still, it is unlikely that they will concede to a resolution’s demands in full just to avoid such an outcome being decided at the AGM – particularly when most votes are non-binding or have prohibitively high thresholds. 

So when a company does make a commitment ahead of a vote, how do shareholders decide whether to withdraw a proposal or not? How do they separate a meaningful commitment from empty promises?

“There’s no science to it”, says Susan Makos, Vice President of Social Responsibility at Mercy Investment Services, the US faith-based investor that recently withdrew a proposal at Blackrock on its poor ESG proxy voting record.“It’s a judgement call.”

Makos explains that Mercy’s decision to withdraw the resolution was prompted by the headline-grabbing open letters that Larry Fink – BlackRock’s Chair and CEO – sent to clients and companies in January, pledging big things on sustainability.  

Mercy has led engagement with Blackrock on the issue of its voting for several years, but she says that its most recent commitments were more “concrete” than previous statements.

A key consideration before withdrawing a proposal, she adds, is whether the company responds adequately to the “asks” it contains. Blackrock’s new commitment to vote against the management of firms that are not making sufficient progress on climate change, was an important one in convincing Mercy it should give the investment titan an “opportunity to put their words into action” this proxy season. 

Steps in the right direction – progress – is something As You Sow’s Fugere stresses is key when deciding whether to withdraw a resolution. 

This year, the foundation withdrew proposals at Wells Fargo, Morgan Stanley, Goldman Sachs and Bank of America on how they planned to reduce their emissions in line with the Paris Agreement.

A fifth proposal, however, still stands at JP Morgan Chase having survived the US Securities and Exchange Commission’s (SEC) ‘no action’ process — no mean feat in the current climate at the regulator.

The difference between JP Morgan and the other four banks? Fugere tells RI that the latter group “made a commitment to testing and measuring the footprint of their finance emissions” – something JP Morgan was not prepared to do. 

She thinks it hoped its recent sustainability pledges — including ending Arctic oil & gas financing — would be sufficient to trigger a withdrawal, but explains that, in reality, those commitments related to such a small percentage of JP Morgan’s loan book that it “didn’t move the dial enough in terms of where we think it needs to be”.

“None of the four banks actually said ‘We're going to set a goal of Paris alignment’ or ‘We're going to set a specific target’”, Fugere concedes, but they did acknowledge that footprinting was a step in that direction, marking “significant progress from where they had been last year”.  

Assessing whether a company is truly moving in the right direction or not is not an easy thing to do and Fugere was “disappointed” to see that Goldman Sachs, Morgan Stanley and Bank of America had all increased their fossil fuel investing in 2019, according to the latest figures from the Rainforest Alliance Network. 

“We did not anticipate that backsliding, certainly not from our discussions with them”, she tells RI. 

On top of the risk of unpleasant surprises, withdrawing a proposal usually involves making compromises.

Brynn O’Brien, Executive Director at the Australian Centre for Corporate Responsibility (ACCR) tells RI that, despite withdrawing its climate lobbying proposal at Rio Tintolast month, it still isn’t totally happy with the Anglo-Australian miner’s position on the topic.

The resolution was withdrawn after Rio Tinto agreed to make what O’Brien calls a “significant public objection” to the controversial use of ‘discounts’ in Australia’s Nationally Determined Contributions, the emissions reductions targets at the core of the Paris Agreement. 

But O’Brien says the ACCR is “disappointed” that Rio Tinto didn’t exit any trade associations involved in obstructive climate lobbying as a result of its latest review — particularly the Queensland Resources Council, whose activities, she says, “are totally incompatible with the Paris Agreement”. 

She notes, though, that these are “long-term engagements”, so the dialogue will continue – a sentiment echoed by Fugere, who says the four banks to dodge a proposal this year are “very clear that we will come back to them next year and say: ‘Okay, let's talk about that Paris alignment target, now you've now had the opportunity to figure out how to measure it’”.