Investor Backing for Green and Social Initiatives Retreats Amidst Political Pressure

Investor support for environmental and social activism declined in general at this year’s annual meetings of US companies. This decrease reflects hesitancy towards increasingly specific proposals and growing political pressures.

The decline in enthusiasm was observed across various businesses such as Amazon, ExxonMobil, and United Parcel Service.

Petitions requesting US companies to take more action on climate change received an average of 23% shareholder support from January to May this year, down from 36.6% last year, according to the Sustainable Investments Institute, a non-profit data provider. Shareholder proposals on human rights received 21.6% of votes cast, compared to nearly one-third in 2022.

Shareholder proposals, typically non-binding in the US, have become more commonly used as a tool for activism by religious organizations, environmentalists, and other socially engaged investors. The Conference Board and Esgauge, a research group, anticipate a record number of proposals to be filed this year.

A change in US policy in 2021 has allowed more petitions to be voted upon. Consequently, proposals have evolved from generic requests for disclosure to specific demands for action from companies.

While the number of petitions has increased, the level of support has not grown proportionately. Only five US shareholder resolutions on environmental and social issues secured majority support from company shareholders this year, compared to over 35 in both 2022 and 2021, as reported by the Sustainable Investments Institute.

Benjamin Colton, head of stewardship at State Street Global Advisors, the $3.6tn asset manager, commented, “We have observed an increase in more transparent corporate disclosures, particularly among larger companies, alongside a rise in excessively specific proposals appearing on company ballots. Our observation is that these dynamics have resulted in an overall decrease in investor support for environmental and social shareholder proposals.”

At Exxon, only 11% of shareholders supported a petition last week to establish emissions reduction targets aligned with the Paris climate agreement, down from 28% last year. Amazon saw less than one-third of shareholder support for a resolution seeking more information on plastic packaging risks, compared to nearly half the previous year.

However, there were notable exceptions in the voting process at several major US banks regarding climate policies. Around 30% of voting shareholders at Goldman Sachs, Wells Fargo, and Bank of America endorsed resolutions calling for the establishment of climate transition plans, with the figure rising to 35% at JPMorgan Chase.

A group of investors concerned about plastic pollution motivated 37% of shareholders in Restaurant Brands International, the company behind Burger King, and Yum Brands, the parent company of KFC, Pizza Hut, and Taco Bell, to call for reporting on methods to reduce plastic usage.

In contrast, support for a diversity, equity, and inclusion proposal at shipping business UPS decreased to 25% this year, down from 37% in 2022.

The shareholder voting process has also become entangled in political battles over the rise of environmental, social, and governance (ESG) investing. Governor Ron DeSantis of Florida, a presidential candidate, recently signed a law mandating the state’s pension funds to vote shares solely based on “pecuniary factors.” Senate Republicans have accused asset managers BlackRock, Vanguard, and State Street of utilizing their shareholder voting power to advance liberal social goals.

Large asset managers publicly state that the political attacks have not influenced their voting policies, according to Matteo Tonello, a managing director at The Conference Board. However, there is a sense of increased caution and sensitivity regarding the implications of these voting policies due to the backlash.

The situation differs outside the US. Average support for environmental and social proposals at European companies slightly increased to 11.6% in 2023, up from 10.6% last year and 5.5% in 2021, as per data provider Diligent. In Europe, fewer shareholder proposals are filed, with only eight environmental or social proposals going to a vote by May 31.

Support for environmental and social resolutions outside of Europe and the US reached 17% this year, up from 11.3% last year, according to Diligent.

Conservative activists in the US have also submitted a record number of shareholder proposals since the SEC’s policy change. However, their issues have failed to gain support from institutional investors and asset managers.

BlackRock emphasizes that its shareholder voting is focused on delivering long-term financial value for its clients. The company experienced a decrease in support for shareholder petitions last year. State Street’s Colton stated that their voting record has remained consistent over the years.

Vanguard declined to provide a comment on the matter.

Petitions related to abortion, filed after the US Supreme Court’s decision to overturn federal abortion rights last year, did not receive more than 12% support at Tenet Healthcare, American Express, and Eli Lilly. At Travelers, an insurance company, a proposal asking for a deadline to cease underwriting new fossil fuel projects received 8.8% support in May, down from 13% last year. Proxy adviser Institutional Shareholder Services noted that the company has already disclosed most of what the shareholder petition demanded.

Brian Bueno of Farient Advisors, a consultancy, stated that shareholder proposals are becoming increasingly specific. For the organizations that typically file the highest number of petitions, their efforts this year did not yield the same level of success as in previous years.

In conclusion, investor support for environmental and social activism at US companies experienced a decline at this year’s annual meetings. The hesitation towards specific proposals and growing political pressures contributed to this trend. While shareholder proposals have increased, the level of support has not risen proportionately. The political landscape, coupled with the rise of ESG investing, has added complexity to the shareholder voting process. Europe has seen a slight increase in support for environmental and social proposals, while outside Europe and the US, support has also grown. The efficacy of shareholder activism may vary based on different regions and issues.