The Black Lives Matter protests after the murders of George Floyd and Breonna Taylor, inequities exposed by the covid-19 pandemic, and a rising sense of urgency on climate and environmental issues have made people reevaluate their priorities and question the systems they are a part of. One of those systems is the financial system, which attracted a historic level of support from investors in the spring 2021 proxy season for resolutions on issues such as corporate political activity, corporate policies on diversity, and corporate impacts on the climate.
For example, as of June 24, 2021 there have been 34 majority votes on shareholder resolutions pertaining to environmental, social, and governance issues (ESG), with more possibly by the end of the year, according to Proxy Preview, an annual report which tracks shareholder action. This is extraordinary because corporate management typically urges all investors to vote against resolutions on ESG issues and most investors follow that advice—even when it’s contrary to the long-term benefit of the company and society. During the 2021 season, 17 votes broke 70% support; in comparison, only two resolutions received that much support in 2020. Moreover, four ESG resolutions that received over 90% support also had the support of management. For so many ESG-focused resolutions to receive majority support is historic and a dynamic to watch closely.
Importantly, however, shareholder resolutions can succeed by earning far less than 50% support since success includes the ability to remain in front of management and investors in subsequent years by remaining on the proxy ballot. A first-time resolution now needs to garner 5% support, a second-year resolution needs 10%, and thereafter a resolution needs 25% support to continue to appear on the ballot and thereby generate investor pressure for corporate transparency and change in corporate conduct.
Some are crediting the overwhelming turnout to the volatility of the last year.
“We’ve been locked in our homes and had a little time to think about what’s important in life,” says Andrew Behar, the CEO of As You Sow [GBN]. “[As shareholders,] we are owners of these companies, we profit from these companies … [and] we are complicit in the system that we live in.”
The increased attention to ESG issues among shareholders is also a possible sign that investors are seeing issues of climate, racial equity, and political transparency as important to long-term financial sustainability. Even larger asset managers, like BlackRock and Vanguard, have begun voting in favor of ESG proposals, which is vital to ensuring change, says Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility.
“We’re seeing that the big fund managers like BlackRock, who have been talking for some years now about ESG, are finally beginning to look their proxies in accordance with what their stated values and concerns are,” Zinner says. “Once you have those big fund managers who are significant universal owners starting to support these proposals, you’re seeing a major rise in the votes.”
Changes to the Shareholder Resolution Process
Despite investor support of ESG issues this proxy season, the next year in shareholder action is hard to predict. In late 2020, the Securities and Exchange Commission, under the Trump administration, made changes to the 14a-8 rule that decides exactly who and how a stockholder can file resolutions.
Previously, any stockholder owning at least $2,000 worth of stock for a year could file a resolution; investors must now own a whopping $25,000 worth of stock if they have owned the stock for one year. Shareholders need $15,000 worth of stock if held for two years if they wish to file a resolution, and smaller shareholders, with at least $2,000, must now wait three years before they can file resolutions. This is an attack on shareholder democracy and the rights of smaller investors. As SEC Commissioner Caroline A. Crenshaw said in opposing the new rule, “the implication of today’s rulemaking is that the wealthy are more likely to possess ideas worthy of corporate consideration. That is one way to reduce the burden on corporations, but I believe that that is a bad result.”
Green America mobilized thousands of concerned investors and consumers to oppose the SEC rule, calling for strong corporate oversight through the shareholder resolution, rather than less oversight by restricting the participation of smaller shareholders and by increasing the percentage of support needed for resolutions to be refiled.
As You Sow, the Interfaith Center on Corporate Responsibility, and individual investor James McRitchie have filed a lawsuit to challenge the SEC’s proposed changes to the 14a-8 rule. The lawsuit, which was formally presented on June 15, argues that the new regulations are a Trump-era attempt to curb the voices of activist shareholders and smaller investors.
“It’s really ironic that at a time where investor support for ESG resolutions is skyrocketing that this SEC rule would significantly curb the filing of those resolutions,” says Zinner.
Perhaps the most notable shakeup in 2021 in the realm of shareholder action happened at ExxonMobil, where shareholders voted to elect three activist investors to the oil company’s board of directors this June. The three new directors were put forward as candidates by Engine No. 1, a relatively new, small investment firm, with the intention of installing leaders who would push Exxon to reduce its carbon footprint and explore sustainable energy options.
What’s more, BlackRock, Vanguard, and State Street voted on behalf of their clients against the formal recommendation of ExxonMobil’s management to oppose the new board candidates—instead supporting Engine No. 1’s dissident directors.
Heidi Welsh, the Executive Director of the Sustainable Investment Institute, says that the change in the board was a result of a perceived lack of climate action on Exxon Mobil’s part.
“The results that occurred are enough to make companies really think hard about how much disclosure they need to do and what their goals are with regard to climate change,” Welsh says. “It’s basically an affirmation that climate change is a big problem for business.”
In addition to the events with Exxon, eight climate change proposals earned more than 50% support this year, resulting in two of the highest votes of the season. Management-backed resolutions at Bunge and General Electric calling for reporting on different environment-related goals resulted in 98.8% support and 98% support, respectively.
More shocking, however, were the majority votes for climate and environmental resolutions that were opposed by management. A resolution at DuPont for more disclose on plastics pollution received 81.2% support from investors, and one at Chevron asking for reductions of greenhouse gas emissions received 60.7% support.
Investors at Walmart also voted this past season on the first-ever resolution regarding the climate impacts of refrigerants, specifically the leakage of hydrofluorocarbons (HFCs). The resolution was filed by the State of Rhode Island with Walmart and built on refrigerant-related campaigns at Green America and the Environmental Investigation Agency. HFCs are an incredibly potent greenhouse gas and make up 48% of the company’s climate emissions. The resolution received 5.5% approval—despite the Walton family owning half of Walmart’s shares—and has reached enough support to be refiled next season.
Political Spending and Lobbying
Proposals about political spending, money donated by corporations through PACs, trade associations, and other organizations to influence elections and policymaking at all levels, received 14 majority votes overall, the most out of any other issue. The Center for Political Accountability found that, since 2010, IRS-designated 527 PACs have raised over $1.5 billion. Much of this spending is undisclosed or only partially disclosed, to the peril of our democracy. Resolutions at Netflix and Chemed asking for more disclosure about election spending received 80.6% support and 80.1% support, respectively.
ICCR members introduced resolutions this year regarding climate lobbying—that is, asking corporations to not only disclose corporate lobbying activities, but to lobby in favor of environmentally-responsible policies.
“The resolutions on climate lobbying are noteworthy because they're not policy engagement with their stated values,” Zinner says.
ICCR members filed climate lobbying resolutions with seven companies, reaching agreements with five of them. Most noteworthy is the resolution at Norfolk Southern, a transportation corporation, which went to vote and received 76.4% support.
Diversity and Race
Increased national attention to racial justice issues throughout 2020 resulted in shareholders asking for reports on racism. Resolutions covered a broad area of issues—asking for reports on lobbying related to equity and racial justice; gender and minority pay gaps; racial justice impact reports; and more.
Of the 46 proposals in the 2021 proxy season that asked companies to address a human rights issue, 18 asked companies to produce reports on how racism affects company proceedings or plans to address systemic racism. Proposals at Amazon and JPMorgan Chase received 44.2% and 40.5% support, respectively—which is an unusually high level of support for a first-year resolution.
Behar says that the success of resolutions asking for racial justice audits was especially noteworthy, considering that organizations like As You Sow have only developed metrics for measuring racial justice in the past year or so.
“We only started … collecting data on racial justice after the George Floyd murder, and to see that data become actionable, and companies really using it to rate and rank themselves—that was, I think, really profound,” Behar says.
Additionally, more attention was given to the diversity of companies, their executives, and their boards of directors during this proxy season. A resolution at IBM asking for a report on the effectiveness of Diversity, Equity, and Inclusion (DEI) programs received 94.3% with management support, while a call for more diversity at First Solar received 91.2% without management support. Overall, there were nine majority votes on diversity-related proposals.
To monitor and strengthen follow-up on corporate pledges made to fortify their diversity and equity commitments, William Michael Cunningham of Creative Investment Research [GBN] filed a petition with the SEC in May 2021 calling on the Commission to develop a “comprehensive framework requiring any public companies or issuers that have promised financial support for Black Lives Matter ("BLM Pledge") to accurately disclose, on a timely basis, all activity related to that pledge” as well as to address the costs of anti-Black racism and how BLM corporate pledges could reduce that cost. These points and others raised in the petition, if enacted, would demonstrate the reliability of corporate BLM pledges and as Cunningham states, “Requiring additional BLM Pledge disclosure will enhance the competitiveness of U.S. markets and help correct economic injustices perpetrated against African Americans.”
Creative Investment Research has also developed a Black Lives Matter Donation Tracker to hold corporations accountable for their BLM pledges and to help ensure that needed changes in corporate conduct actually take root.
Looking to Future Seasons
The 2022 proxy season is expected to be a transition period as the changes to the 14a-8 rule go into effect unless they are reversed; as such, it’s hard to predict exactly what will happen in the next year. That being said, Welsh says that she expects issues of diversity, political spending, and climate change to be leading issues, but the individual focus of those proposals might change.
Regardless of changes to the resolution process, there are still ways for investors and shareholders to encourage change. Tim Smith, the director of ESG shareowner engagement for Boston Trust Walden, noted that pressure on companies to make change is happening not just through shareholder action — fund managers like BlackRock are also putting pressure on companies through pledges of divestment.
“In 2020, several large institutional investors pledged to divest from fossil fuel companies,” Smith says. “In addition, we witnessed record levels of votes supporting climate-related shareholder resolutions in the 2020-21 proxy season. This combined pressure from global investors should prompt company management and boards of directors to take a closer look at how they are addressing the climate crisis.”
Green America resources on shareholder action include our infographic on how to read a shareholder proxy ballot (p 19) and our list of sample resolutions to vote at greenamerica.org/shareholder-resolutions-vote.
Special thanks to the authors of the 2021 Proxy Preview report