Each recent proxy season has broken earlier records, but the volume of proposals rose even more dramatically in 2022 and the number voted on grew by about 60 percent.
Companies and investors continued to assess proposed mandatory climate disclosure rules and await promised additional required reporting, even as Republican politicians started to inveigh against the concept of “ESG” on the national stage. This injected more political tension into discussions about whether and how investors, investment managers, and companies should consider environmental and social matters and related corporate governance.
Record volume: Investors voted on 316 proposals in 2022, out of 630 filed, but agreements between proponents and companies also yielded a record 272 withdrawals. Only 12 were omitted, down from 39 in 2021 and an historic low.
A slew of low-scoring anti-ESG proposals depressed the overall average. Excluding those resolutions, average support was 29.4 percent, down from 33.4 percent in 2021.
Key themes: Climate change, corporate political influence and diversity (on the board, in the workplace, and in fair pay) remained key themes and proponents raised many new angles; 37 earned majority support—including 16 on racial justice and diversity concerns, 16 about climate change and the environment and five on corporate political influence.
Regulatory Ferment
While resolution of a lawsuit from shareholder proponents challenging the new Trump-era SEC rules for filing and resubmitting shareholder resolutions was expected, it did not come (and has yet to be resolved for 2023). The Interfaith Center on Corporate Responsibility (ICCR), As You Sow, and James McRitchie contend the rulemaking violated the Administrative Procedure Act and should be set aside.
On July 13, 2022, the SEC adopted amendments to its rules for proxy advisory firms, rescinding 2020 rules that many investors felt would “impair the timeliness and independence” of the firms’ advice, as the SEC put it in a press release. (See Harvard Law School Forum on Corporate Governance article for more.) The changes had been welcomed by many companies, though; the U.S. Chamber of Commerce then filed suit on July 28 to reinstate the rescinded changes. (That case has yet to be decided.)
Environmental Issues
Climate change jumped to the top of the proxy season agenda, buttressed by new environmental justice angles and many on corporate political influence.
Climate change: The number of proposals specifically on climate change jumped to 117 (up from 79 in 2021), with 46 votes and 68 withdrawals. Proposals about emissions became more specific, explicitly seeking net-zero targets and reports, at many new recipients.
GHG emissions—Investors evinced strong support for adopting science-based targets, with three majorities: 87.6 percent at construction supplier Builders FirstSource (with company support), 70 percent at Costco Wholesale and 88.5 percent at food distributor US Foods Holdings (no management recommendation). Several companies agreed to set the requested targets, but none were energy companies. In the oil and gas sector, where several votes in 2021 asking for more general target setting were above 50 percent, the highest vote was 41.8 percent at ConocoPhillips for a specific request on timeframes and targets.
Reporting on GHG targets was popular when it went to a vote, with a 54.8 percent result at Dollar Tree and 47.1 percent at Valero Energy. As You Sow withdrew three proposals on Scope 3 methane emissions after agreements at Dominion Energy, Duke Energy and Southern. But a Dominion Energy proposal seeking a report on stranded carbon assets earned a whopping 80.1 percent. Chevron supported a methane reporting proposal and the vote was 98 percent.
Financing—Proposals to banks asked for new limits on fossil fuel project finance or underwriting were new and the highest vote was 19.4 percent at Chubb. Resolutions seeking disclosure of GHG emissions financing earned far more, with votes of 72.2 percent at Chubb and 55.8 percent at Hartford Financial Services. A rare but notable withdrawal occurred when American International Group said it had set net-zero targets across its underwriting and investment portfolios.
Strategy and risk assessment—Agreements abounded (15) between investors and companies about reporting on how to lighten carbon footprints via climate transition plans detailing strategy, emissions and targets. Boeing supported one of the six proposals seeking corporate plans for transitioning to a low- or no-carbon economy; the vote was 91.4 percent. Caterpillar also supported a call for a Paris climate treaty-compliant plan, producing a 96.5 percent vote.
The number of proposals asking for audited climate transition plans grew to nine and one earned 51 percent at ExxonMobil, although probably more significant were the seven withdrawals in which companies promised action.
Nine proposals sought disclosure of different climate-related impacts; the highest votes were 35.4 percent for a water impacts study at Tesla and 35.4 percent favoring a report on refrigerants and GHG emissions at Kroger.
Deforestation—Just one of six proposals on efforts to slow forest loss went to a vote (the others were withdrawn with agreements); investors gave 64.7 percent support to a Home Depot proposal seeking more details on its efforts to protect forests in its wood products supply chain.
Environmental management: The number of environmental management proposals rose to 52, split about evenly between waste/pollution and agricultural practices.
Waste & pollution—Most waste proposals asked companies to cut back on producing and using plastics given harmful impacts on the oceans in particular, focusing on single-use applications. There were two majorities: 95.4 percent at Jack in the Box (despite management opposition) and 50.4 percent at Phillips 66 about shifting to recycled polymer production.
Agricultural practices—Proponents asked for reports on antibiotic usage, pesticide risks and animal welfare. The highest scoring were a resolution on pesticides and health risks at Archer-Daniels-Midland (33.7 percent) and another on animal welfare at Papa John’s International (41.8 percent).
Social Issues
Corporate political influence: The array of proposals asking how companies interact with the political arena and oversee and disclose their spending shifted, in a direction even more apparent in 2023. The primary focus remained on corporate governance oversight and reporting, but more questioned which issues company-connected money supports. Climate-related lobbying proposals expanded. There were 116 proposals about political money overall, up from 89 in 2021.
Lobbying—Forty-three proposals in the main lobbying campaign produced 25 votes, including two majorities—60.4 percent at Netflix and 52.7 percent at Travelers. Proponents hostile to ESG aims sponsored four proposals that used precisely the same language as their foes and earned comparable support—showing investors voted on what the proposals said, not who sponsored them.
The Teamsters brokered a notable agreement at ExxonMobil; the union concluded the company’s report in February was “a significant step in our ongoing efforts to improve transparency and build trust among our stakeholders. We believe this establishes a new standard in reporting.” Most of the two dozen proposals about climate lobbying were withdrawn given a plethora of agreements and high votes the year before. But votes in 2022 were lower, with the highest coming in at 34.6 percent at Tesla.
Elections—Investors have considered proposals about election spending oversight and disclosure since 2003 but voted on only nine in 2022, with two majorities—57 percent at Dollar General and 53.4 percent at Twitter. Thirteen of 15 withdrawals came after agreements.
Values congruency—Political influence proposals rose with attention to mismatches between stated corporate policies and the actions of politicians and groups they support. Rhia Ventures and its allies were the most prolific, raising questions about reproductive health rights, while also mentioning diversity, voting rights and climate change. Votes were high—44.1 percent at AT&T, 46.3 percent at CIGNA and 42.6 percent at Home Depot. ICCR members concerned about lobbying and access to medicine saw a bare majority of 50.2 percent at Gilead Sciences as well as 43.3 percent at Johnson & Johnson.
Decent work: About half of the record-high 74 proposals about decent work addressed differential compensation on the basis of race and gender, while the rest dealt with working conditions and benefits.
Fair pay—Proposals on adequate employee pay ran the gamut from tipped wages to low starting pay and the highest vote was 29.5 percent at Kroger. Resolutions continued from Arjuna Capital and Proxy Impact about median gender/racial pay disparity data and there were two majorities—58 percent at Lowe’s and 59.6 percent at Walt Disney.
Fair treatment—New angles abounded in the 30 proposals on working conditions. The biggest group about concealment clauses that can hide malfeasance and votes included majorites at Apple (50 percent), IBM (64.7 percent), Sunrun (98.2 percent with management support) and Twitter (68.9 percent). Investors also gave near-majority support (46.9 percent) to a NYSCRF proposal seeking an assessment of harassment and discrimination at Tesla, which has faced multi-million dollar settlements and negative press. New proposals asked about worker misclassification, with the strongest of three votes hitting 35.7 percent at Lowe’s.
Health and safety—Two of four proposals about worker health and safety at Amazon.com went to votes, with the highest earning 44 percent.
Paid sick leave—The SEC switched course on allowing paid sick leave proposals and two of six filings appeared on proxy ballots; the highest vote was 33.8 percent at TJX.
Diversity at work: Shareholder proponents continued to respond to the Black Lives Matter movement with resolutions seeking seeking more diversity data, but there were only seven votes given many agreements. Votes varied, with two different proposals at Charter Communcations each earning about 45 percent.
Ethical finance: A tax compliance proposal at Amazon.com referenced the Global Reporting Initiative’s 2019 standard, survived an SEC challenge and received 17.5 percent. More are on tap for 2023.
Health: The most striking outcome on health proposals was the nearly complete lack of agreement between shareholder proponents and companies: there were only three withdrawals out of 24 filings, and companies challenged 15 resolutions at the SEC on multiple grounds, without much success.
Covid-19—Pharmaceutical companies faced resolutions about fair access and pricing for Covid-19 vaccines and treatments, with most votes in the 30-percent range. ICCR members also articulated concerns about “patent thickets” that keep drug prices high in new proposals that earned fairly strong support; the highest vote was 39.6 percent at Gilead Sciences. That issue also continues with even more specificity in 2023.
Product impacts—Resolution on the impacts of food and household products made up another chunk, but unhealthy food proposals got only modest support (in the low teens).
Reproductive health—In addition to its political influence proposals, Rhia Ventures again asked how companies would handle risks associated with reproductive health rights restrictions. Right after proxy season ended, the U.S. Supreme Court’s June overturned Roe v. Wade, ending 50 years of federal rights to an abortion. The decision roiled the fall midterm elections and is fueling many more proposals in 2023. The highest 2022 vote was 32.3 percent at Lowe’s.
Human rights: Proposals about human rights reached a new height of 91, driven by many seeking racial justice audits, with other still interested in setting standards and reporting on performance, in addition to calling out the ills of technology.
Racism—Resolutions seeking formal racial justice or civil rights audits earned eight majorities, at Altria (62.2 percent), Apple (53.6 percent), Home Depot (62.8 percent), Johnson & Johnson 62.6 percent), the government services firm Maximus (64.2 percent), McDonald’s (55.8 percent), Stericycle (60.6 percent), and Waste Management (55 percent). But proponents also withdrew at 30 companies, with agreements at all but three firms, as companies agreed to release data and/or conduct the requested analysis. The first of the audits are due in the first quarter of 2023. Five new proposals also discussed environmental justice and indigenous rights, with the highest vote 35.6 percent at Republic Services.
Risk management—Only 13 resolutions voiced longstanding requests for assessments of human rights policies and risks, but there were new angles and four were from proponents generally hostile to ESG considerations. The strongest support of 38.9 percent came for a proposal at Amazon.com on labor rights; this approach features in 2023 proposals about domestic U.S. organizing rights, at more companies.
Notable agreement between proponent on the left and right ends of the political spectrum continued regarding China’s oppression of the Uyghur people. The National Legal & Policy Center noted Walt Disney thanked the Chinese government for its help in filming the live-action version of Mulan in the province where Uyghurs have been detained in work camps; it received 36.8 percent for a report request.
Technology misuse—Social media platform companies again faced proposals about surveillance, censorship and content management. Alphabet alone saw six separate proposals and support was about 41 percent for two resubmitted resolutions on surveillance technology harms.
Content management—Most notable was a third-year resubmission about online child sexual exploitation at Meta Platforms that received 17.3 percent (nearly 57 percent of the non-management controlled vote).
Weapons—Age old concerns from faith-based investors at weapons companies accounted for eight proposals and produced a strong majority of 68.5 percent at gunmaker Sturm, Ruger supporting a human rights impact assessment, but votes were in the mid-20-percents at two defense firms. The vote on a request to adopt a human rights policy at another gun company, Smith & Wesson, was 41.8 percent.
Conflict zones—Investors gave only modest support to proposals about company operations in conflict zones; the highest votes was 17.1 percent for a new resolution that sought a report from Alphabet on how it considers countries’ human rights records when locating its global cloud data centers.
Sustainable Governance
Proposals seeking generalized reports on sustainability, board diversity and specific board oversight now occupy a much smaller part of proxy season than in the past, a decline that continues in 2023.
Board diversity: While 22 proposals asked for disclosure or policies on more diverse board of directors, only eight went to votes. The highest vote for a board diversity proposal was 36.3 percent at Corvel, a risk management firm, in favor of reporting not just on the diversity of board candidates and executives. Eight of nine proposals seeking disclosure of director attributes in a matrix format were withdrawn after agreements; this type of reporting is now mandatory for firms listed on the Nasdaq exchange.
Board oversight: Only three proposals seeking specific types of board oversight went to votes, with modest results; the highest vote was 14.9 percent for a human rights expert at Twitter, but proponents also withdrew four proposals after agreements to ensure more board focus on climate change, human capital and sustainability.
Sustainability: Proponents introduced some new ideas, with 15 votes and seven withdrawals.
Metrics disclosure—A new proposal from As You Sow asked about employee retirement plan alignment with company climate goals but votes were 11 percent or less. More appear in 2023.
ESG pay links—Proposals seeking links between executive pay and various sustainability metrics continued and produced high votes at health care companies. Requests to include extraordinary legal costs in pay calculations, keeping in mind the impact of opioid litigation, produced votes of 35.5 percent at AmerisourceBergen and 47.7 percent at Johnson & Johnson.
Anti-ESG
The field of proposals from proponents who do not believe ESG factors should be considered by companies or investors substantially expanded in 2022, but support levels remained in the basement. There were 47 filings explicitly opposed to ESG, 33 votes, 11 omissions and three omissions. Only five earned enough to be resubmitted.
Diversity and censorship: Proposals questioned the merits of corporate programs to enhance diversity, equity and inclusion, claimed overly liberal directors dominate boardrooms and railed against communism. They also suggested the U.S. government censored anti-vaccine sentiment.
Corporate political influence: While copy-cat proposals from right-wing groups that used the resolved clauses of the dominant political influence campaign earned support similar to the main campaign, a dozen others on charitable contributions did not pick up much steam when they suggested giving to liberal groups could hurt company reputations. The highest vote was 9.3 percent at Meta Platforms.
Sustainability: Two proposals asked companies to report on the risks of becoming a public benefit corporation but neither earned more than 3 percent. A request at International Paper to conduct a cost-benefit analysis of its environmental programs received 1.7 percent.