Key ESG Issues Up for Shareholder Vote

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

April to June is a busy time for U.S. investors, with around 3,000 shareholder meetings taking place and tens of thousands of proxy votes being cast.

Why should you cast your ballots, if you haven’t already? As my colleagues explain, proxy voting allows you to influence company operations and decisions--and increasingly, you can have a say in shareholder resolutions tied to environmental, social, and governance issues. Companies that effectively address their material ESG risks are positioning themselves to protect their long-term sustainable profits.

Following record support for environmental and social issues in 2019, high-profile commitments to stakeholder governance from corporate leaders and large investors, and increasingly forceful global investor engagement on climate action by leading institutions--the 2020 proxy season was already shaping up to be interesting. But the coronavirus crisis is creating a stronger sense of urgency and commitment to sustainable business practices and responsible investment.

With one month to go in the 2020 proxy season, let’s take a look at voting to date and flag upcoming resolutions.

Here’s what we’re seeing so far: a record number of resolutions passing.

A record number of environmental and social shareholder resolutions have passed with majority shareholder support in 2020. Since April, at least 16 resolutions have passed so far and one more received 49.96%, making 17 resolutions with at least 50% support--up from 10 over the period April to June last year.

• Investors continue to vote for board accountability for climate-related issues. At Phillips 66 (PSX), a resolution asking for a report on the physical climate risks to new chemical plants and related infrastructure in Gulf Coast locations, given greater frequency and intensity of climate-induced storms and flooding, earned 55% support from shareholders. Similar resolutions were voted last week at Chevron (CVX) and Exxon Mobil (XOM). At Chevron, 46% of shareholders supported the measure, while 24% supported the measure at Exxon. 
• Shareholder backing is surging for resolutions addressing corporate political influence, including a resolution asking Alaska Air Group's (ALK) board for a report on lobbying payments and activities. It earned 52% support. At Centene (CNC), a resolution asking the company to disclose amounts and governance of election-related spending earned 51% support. Early voting results put support for a Paris-aligned climate lobbying resolution brought by French asset manager BNP Paribas at Chevron at 53%. 

Beyond the 2020 proxy season: pandemic response and race will feature more prominently.

While the shareholder resolutions being voted were almost all filed well before the onset of the pandemic crisis, we can expect to see the number focusing on worker treatment, supply chain labor conditions, human rights considerations, and nondiscrimination--together comprising the "S" in "ESG"--rise significantly in 2021 and for labor groups to take a more prominent role in defining the concerns. 

• With the focus building on how companies treat their employees in the wake of COVID-19, more attention may fall on say-on-pay beyond the 2020 proxy season. The vote for executive pay this year at Uber (UBER), had only 71% of shareholders’ support, in contrast with the overall average of 90.5% for all resolutions in this category so far this season. CtW, representing trade union-linked pension funds, had called for a vote against Uber’s say-on-pay proposal. The same group had also called for votes against McDonald’s (MCD) say-on-pay proposal, which earned 80% support.
• Since the beginning of April, three resolutions asking for workforce-related disclosures have earned majority support, including one earning 79% support at Genuine Parts (GPC), another earning 66% at O’Reilly Automotive (ORLY), and another earning 61% at Fastenal (FAST)--all against the recommendations of the companies' management.
• Importantly, all three of the majority-supported workforce disclosure resolutions include requests for racial and ethnic group workforce breakdowns. Racial bias and discrimination have long been addressed in shareholder resolutions. In recent years, race has been addressed alongside gender diversity when the focus is on pay equity or on workforce, senior executive, or board composition. However, race is dealt with more explicitly in a handful of other resolutions. For instance, a resolution filed by labor group AFL-CIO, to be voted on at Santander Consumer USA Holdings  on June 10, asks the company’s board to prepare a report on racial discrimination in vehicle lending, citing evidence that, in the United States, African American and Latino borrowers face higher auto dealership markups on vehicle loans than their white counterparts of equal creditworthiness. Others address race in the context of the governance of fake and hate content; the treatment of farmers in supply chains; and the development of surveillance technologies used by the U.S. government.
• The wave of protests calling for racial equality will likely lead to stronger investor action beyond the 2020 proxy season addressing the investment and reputational risks of institutionalized racism.



Stakeholder Capitalism Seems Here to Stay
The ideas of stakeholder capitalism and inclusive capitalism extend the purpose of the corporation beyond profit and extend the time frame for evaluating corporate performance beyond quarterly metrics. The investor case was crystalized in BlackRock’s 2020 CEO letter:

"Companies must be deliberate and committed to embracing purpose and serving all stakeholders--your shareholders, customers, employees, and the communities where you operate. In doing so, your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole."

The investor case base has been further underscored by comparisons of how companies and portfolios have weathered the pandemic, and it has fundamental implications for investor stewardship. Statements released by global investor groups in recent weeks emphasize inclusivity, human capital management, and renewed commitment to the low-carbon transition as strategies for economic recovery from the COVID-19 pandemic. Data emerging from the 2020 proxy season show these priorities translating into proxy votes. We expect shareholder resolutions, proxy voting, and investor engagement to place greater emphasis on worker treatment, inclusivity, and discrimination beyond the 2020 proxy season.