Shareholder Proposals for Sustainability
One of the primary ways that investors can have an impact on the environmental, social and governance (ESG) behaviors of publicly-traded companies is through the submission of shareholder proposals, also known as shareholder resolutions, which can be voted on at a company’s annual meeting. Large institutional investors often directly engage in discussions with company management about their ESG policies and submit shareholder proposals. Small investors can also exert their influence by investing in mutual funds that consider ESG criteria in their investment selection process. Many of the firms that manage these mutual funds use “shareholder advocacy” techniques to represent the interests of their many investors, including engagement with company management and filing shareholder resolutions.
Every year, U.S. corporations send out “proxy statements” to their shareholders, which list all the resolutions scheduled for a vote. The proxy would include resolutions proposed by management as well as those proposed by shareholders. Because most shareholders do not attend the annual meeting in person to vote, they use the proxy ballot to express their support for various proposals. It is important to note that proxy voting is the primary means for corporations and shareholders to seek affirmation of their actions. It is also important to understand that many shareholder resolutions do not receive a majority vote in the first, second or sometimes even third year of submission; however, the growth in shareholder approval on any given proposal sends a strong signal to management.
The Sustainable Investments Institute (Si2) is an organization that tracks shareholder proposals on environmental and social issues and monitors the results of these proposals. Si2 (www.siinstitute.org) recently released their 2018 Proxy Season Review, and here are a few of the findings:
- A total of 464 resolutions were filed on social, environmental and sustainable governance topics this year. This is down slightly from the 2017 record total of 494, but the number of ESG proposals has risen over the last decade.
- Average support for ESG resolutions has risen to an all-time high of 25.1%. Impressively, 12 proposals earned majority support, even on issues that had generated minimal shareholder approval on past ballots. This trend seems to support the importance of “non-financial” concerns to shareholders and the concept that non-financial issues are increasingly material to long-term corporate sustainability and financial returns.
- In addition to the 12 majority votes in 2018, another 19 ESG proposals received 40-49% support and 35 earned 30-39% support.
- Major themes in ESG proposals in 2018 included climate change, political activity, diversity, and generally demanded more disclosures on ESG policies.
Shareholder advocacy and the proxy voting process are important tools used by investors to help make the world a better place. Falcons Rock Impact Investments is designed to help investors pool their money together for positive impact. Learn more today.