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Sustainable Investing

Key ESG Issues Up for Shareholder Vote

Employee welfare and political influence are among the big environmental, social, and governance issues this year.

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%.
  • 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 SC 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.

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