The 2023 Annual General Meeting (AGM) season was a record high for ESG (environment, social and governance) shareholder proposal submissions. As of May 15, 951 ESG proposals had been submitted, surpassing the 941 submissions the previous year.
Despite the increase in the number of ESG proposals, overall support for ESG initiatives has declined over the past two years, with the number of proposals receiving majority support dropping significantly. Only 24 proposals received majority support through May 12, compared to 48 by the same deadline in 2022.
Investors showed a decreasing level of support for ESG proposals as they become more specific and focused on the impact of environmental, societal and political issues, including board and workforce diversity work, political spending and reproductive rights.
Anti-ESG on the rise
Anti-ESG proposal submissions accounted for 10% of all ESG proposals: double the proportion last year. Despite the increase in the number of anti-ESG proposals, the average support for them nevertheless fell from 9.2% in 2022 to 6.2% in 2023.
Among the different categories of anti-ESG proposals, those focusing on social topics have seen a significant increase: a 46% increase in submissions (67 in 2023 to date compared to 46 in 2022). None of these proposals was adopted.
So far in 2023, sponsors have filed 27 anti-ESG proposals related to Diversity, Equity and Inclusion (DEI) issues, a number that is growing every year.
Of the 20 social proposals already voted on as of May 12, 2023, average support was around 3.5% in 2023, compared to 7.7% in 2022.
Governance proposals in this category continued to receive the highest average support, at 13.7% so far in 2023, compared to 16.2% in 2022. Independent chair proposals from anti-ESG supporters were successful ones, but their average support has also declined.
A new type of proposal – “Business and Society” – has surfaced from anti-ESG proponents in 2023. Eleven such proposals so far in 2023 have asked companies to report on risks of involvement companies in “non-essential” political issues. and the relevance and appropriateness of these types of partnerships.
Although there was a slight increase in the number of environmentally-focused proposals compared to last year, the average support has decreased to approximately 26% in 2023; compared to 38% in 2022.
Proxy advisers ISS and Glass Lewis were also less supportive of environmental proposals, which may have contributed to declining support for these proposals.
Greenhouse gas emissions have been a significant “hot topic” during the 2023 proxy season, with shareholders pushing for more disclosure and improvements in this area.
Proposals calling for alignment of climate lobbying activities with the Paris Agreement or Net Zero goals remain similar to 2022 (18): there have been 19 so far this season. The six climate-aligned lobbying proposals voted on so far have received an average of 35% support, with five proposals receiving over 30% support and one reaching 47.4% support.
A new shareholder-type proposal focused on plant-based alternatives – five proposals filed so far during the 2023 AGM season, including one that passed with 5.3% support – has also emerged. The other four proposals have been omitted.
Shareholders continued to take advantage of exempt solicitations to express their support or lack of support for a proposal or a director. The number of waiver requests against the election of directors based on climate-related issues remained comparable to last season, with 21 filed so far in 2023 and 27 in 2022. However, there have been an increase in the number of exemption requests filed in support of environmental and climate proposals: 95 in 2023 compared to 67 in 2022.
The 2023 general meeting season has seen an increase in the number of shareholder proposals centered on social issues (at least 420), surpassing the previous record set in 2022 (409) and underscoring the growing demand for corporate responsibility across a broad spectrum. range of societal concerns.
Overall support for social proposals has fallen slightly from 24% in 2022 to 20% in 2023. Only three shareholder proposals have received majority support so far in 2023, compared to nine during the same period. last year.
Reproductive rights: Reproductive rights have become an important topic for shareholders, with the number of proposals filed having more than quadrupled, from four in 2022 to 22 in 2023. These proposals mainly focus on the potential impact of regulations on access to healthcare reproductive. Many of the proposals specifically address employee rights while others also target financial institutions and tech companies when it comes to protecting user data.
Despite increased attention to the topic, average support for reproductive rights proposals has fallen from 25% in 2022 to 13% in 2023. Proxy advisors have been hesitant to support these proposals, citing potential legal risks for companies associated to their increased disclosure. .
Proposals related to diversity, including equity and inclusion: Diversity topics remain a key area of interest for proponents, although overall support has declined. Shareholders are increasingly making specific and detailed demands of companies, such as initiating racial equity or civil rights audits or demanding disclosure of information about the effectiveness of the Diversity, Equity and Inclusion (DEI) program. ‘a company. The shift from disclosing broad demographic data to more substantive disclosures reflecting the desire for more meaningful action and tangible progress.
Civil Rights and Racial Equity Audits: Civil rights and racial equity audits, which examine internal and external procedures impacting minority or protected groups, continue to be a focus in 2023. Favorable recommendations from proxy advisors also declined for these proposals, which may at least partly explain a significant drop in shareholder support for racial equity audit proposals – from 41% in 2022 to 24% in 2023.
Human capital management (HCM): HCM proposals (excluding diversity initiatives) continue to attract attention. Shareholders submitted 15 proposals related to freedom of association (FOA) or the rights of workers to organize. Three proposals were put to the vote in 2023 and one was adopted. Other topics, including workplace harassment, mandatory arbitration compensation practices and just transition, remained front and center for promoters with comparable support through 2022.
Political spending: Shareholders maintained a focus on political spending, filing a large number of proposals on political contributions and lobbying. In 2021, political contribution proposals received an average support of 40%, while political lobbying proposals garnered 38%. Those 2021 highs have declined so far in 2023 to an average of 24% (14 voted political contributions) and 28% (17 lobbying proposals) respectively. To date, no proposal on political spending has been adopted.
The 2023 Annual General Meeting (AGM) season brought significant developments in governance, with director elections, say-on-pay votes and the use of the universal proxy card (UPC) at the center of l ‘attention.
Director Elections: Support for the election of directors remains strong among Russell 3000 companies, with an average of 94.9% of votes cast in favor in the 2023 proxy year. last year (94.7%), underscoring continued shareholder confidence in appointed directors. The stability of support for the election of directors suggests general shareholder satisfaction with the composition and performance of boards.
Universal Proxy Card (UPC): Compared to previous years, the introduction of the UPC did not result in a significant increase in contested elections of administrators. The data suggests that the number of contested elections and proxy contests in 2023 is similar to previous seasons, with 41 campaigns compared to 42 in 2022. However, there has been an increase in settlements and concessions: 11 recorded in 2023 so far. now compared to nine in 2022. This suggests that the UPC may have influenced the bargaining dynamics between shareholders and companies.
Since the fall of 2022, some companies have implemented changes to the articles of association, particularly with regard to notice provisions. These changes can serve as “defense mechanisms” for companies, potentially limiting the ability of shareholders to use UPC effectively. The increase in these amendments highlights companies’ proactive approach to protecting their interests in contested elections.
Say on Pay: The “say on pay” vote, which allows shareholders to express their opinion on executive compensation, has seen a marginal increase in average support so far during the 2023 general meeting season. Among companies in the Russell 3000, approximately 91% of votes cast were ‘in favor’ of executive compensation packages (excluding abstentions) during the period, which is a very slight improvement from 2022 (90%) and indicates an improvement lesser level of shareholder satisfaction with the alignment of pay and performance.
Given this evolving ESG landscape, effective board engagement and education is needed to help anticipate the growing challenges posed by investors and sponsors reviewing companies’ ESG practices.
While the 2023 AGM season saw a record number of ESG proposals, the high number of withdrawn proposals also suggests that companies and developers may be increasingly willing to negotiate on these issues. Proponents may view negotiations as a more effective way to encourage action. As a result, we may see a continued increase in the number of traded results in the future.
Reactive and active engagement is an exercise that takes place throughout the year before, during and after the AGM vote and has become an increasingly important mechanism for gaining investor confidence and support. Engagement as ongoing two-way communication between companies and shareholders helps set expectations and promote understanding on both sides, a growing necessity as proxy matters become more complex and difficult.
The full report – A First look at the 2023 proxy season – can be downloaded from https://www.georgeson.com/us/insights/2023-proxy-season-early-look.