Last year’s proxy season is going to be a tough one to follow. 2021 saw a record 35 ESG-oriented shareholder proposals garner majority support – a more than 50% rise on the previous year, attributed to the heft of the big US mutual funds which are increasingly inclined to support such proposals.
There was also a profound shift in the US regulatory landscape under President Biden, particularly at the powerful securities regulator, the Securities and Exchange Commission (SEC).
But, perhaps, the most dramatic was the election of three dissident directors onto the board of US oil giant ExxonMobil, chosen and backed by investors because of their ‘climate competence’.
But as we head into the 2022 proxy season, concerns are being raised about the impact those directors have been allowed to make. Chris Ailman, the CIO of the $309bn Californian public pension, CalSTRS, one of the first to back the campaign at Exxon, told Bloomberg last month that oil giant has not yet embraced the new directors.
Could a lack of results at Exxon discourage similar campaigns elsewhere or hinder the tentative but increasing focus on directors’ climate competence? Big investors are already reluctant to vote against boards over climate change according to recent analysis, so it might not take much to do so. All eyes will be on the oil giant for signs of progress in 2022.
One thing that seems certain this year is that big emitters will face far more prescriptive climate target proposals following recent guidance from the SEC, a body that has undergone a stark transformation under President Biden’s Administration.
During the Trump Administration investors found it close to impossible to file proposals calling for emission reductions targets at big emitters – the SEC allowed companies to bat them away using appeals to rules around micromanagement and substantial implementation.
Last year, however, there were signs that the SEC had shifted, with emission reduction proposals, which did not include time bound targets, being allowed to go to the vote and achieving majority support at the likes of US oil giants Chevron, Phillips66 and ConocoPhillips.
Then in November, the SEC put out new guidance, paving the way for science-based, time-bound emission reductions target proposals that refer to international frameworks, like the Paris Accord, to be put to the vote at companies.
Following the publication of the regulator’s rule interpretation, US retail giant Costco almost immediately withdrew its attempt to exclude a proposal calling for “short, medium, and long-term science-based greenhouse gas emissions reduction targets” — a clear sign of how the pendulum at the regulator has shifted towards investors.
Science-based emission target proposals have already been filed this year at Exxon, ConocoPhillips and Phillips66 this year by Dutch activist Follow This.
It seems likely that we will also generally see more and increasingly progressive ESG proposals be taken to the vote this year, following the shift at the SEC, which acknowledged in its guidance that it had placed “undue emphasis” on the significance of “a policy issue to a particular company at the expense of whether the proposal focuses on a significant social policy”.
Some have questioned whether an increase in the number of ESG proposals will result in a lowering of the average support for them – the restrictions under the previous administration concentrating support on fewer proposals.
One topic that looks set to feature heavily again this year is racial justice. Racial/civil rights equity audit resolutions have already been filed at tech giants Alphabet and Apple and oil major Chevron for 2022.
Last year, many of these proposals drew big support, especially for first time proposal, and prompted US financial giants BlackRock and Citigroup and private prison operator CoreCivic to commit to undertaking an independent audit on racial impacts.
Despite the impressive support for the racial equity audit proposals, however, socially focused proposals are still struggling to get the same level of backing as those on environmental themes, particularly climate change.
Analysis of a broad sample of shareholder proposals by campaign group ShareAction found that just 15% of social-based resolutions received majority support compared with 32% for environmental ones, despite it being a year in which the global pandemic raged on, and racial injustice was high up the agenda of many.
Will the urgency of climate crisis continue to dominate the attention of investors, or could 2022 be the year that social proposals get the attention they deserve?