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Sustainable Investing

What to Expect From the 2022 Proxy Season

On the shareholder ballots this year: climate, lobbying transparency, gender and racial pay equity, diversity, and Carl Icahn's fight for animal rights.

If Apple’s AAPL example is any indication, the customary springtime challenge between shareholders and corporate boards known as proxy season will result in more concessions by management this year.

On March 4, only 64% of shareholders voted to approve Apple's executive compensation plan, with naysayers including Norway's $1.3 trillion sovereign wealth fund, which owns 1% of Apple's shares.

In addition, a majority of Apple shareholders voted for the company to hire a third party to analyze and improve its civil rights impact, and separately, to report on the potential risks to Apple related to its use of nondisclosure agreements and other concealment clauses.

The audits “help Apple identify their blind spots and do a more comprehensive job of bringing in stakeholder concerns and making sure they’re doing the right things,” says Jonas Kron, chief advocacy officer for Trillium Asset Management, which specializes in sustainable investing and filed the civil rights proposal. “It’s like fixing the roof of your house--it makes sure the integrity of your home is maintained.”

Proxy season is when most companies hold annual general meetings. Proxy statements start flooding your mailbox, and companies remind you to cast your votes for such things as its nominees for the board, compensation of directors and executives, and shareholder proposals. Informally, the season is anchored by Apple at the beginning and Alphabet’s GOOG annual meeting in early June. Learn more about proxy voting and its importance in our "Proxy Voting 101" article.

In the past, investors have been quiescent on issues like executive pay and voted with management to deny a variety of proposals made by other shareholders. In recent years, more than 90% of Apple shareholders have usually voted to approve executive compensation.

But that’s likely to change, with more investors using their votes to direct companies to address stakeholder concerns. Even though shareholder resolutions aren’t binding, boards of directors take them seriously.

“I do anticipate that shareholders will be harder on compensation this year,” says Jackie Cook , stewardship director at Sustainalytics, a Morningstar company that provides sustainability research. “The incremental drop” in the customary support for executive pay “is likely to continue.”

It's still early in the season, and many companies haven't released their proxy statements. This year, too, requirements on introducing proposals have gotten tougher. In addition, companies often ask the SEC for permission to leave certain proposals off the proxy statement. For example, Apple asked if it could leave off the concealment and civil rights proposals, but the SEC refused.

Shareholders have never been more active. According to the Interfaith Center on Corporate Responsibility, members have filed 436 shareholder resolutions in 2022, versus 244 at this time last year. Last year, the ICCR reported, 23 proposals sponsored by members won majority support. While last year was "unprecedented" in terms of proposals on environmental and social issues, "the 2022 proxy season promises to be even more challenging for corporations," the Conference Board recently wrote.

This year, more companies are adopting proposals before they make it to the proxy statement.

“When we file a resolution, we’re getting a very high percentage of companies that jump to agreement,” says Tim Smith, senior environmental, social, and governance advisor at Boston Trust Walden. Smith, a veteran of many shareholder campaigns, believes some 60 companies have acquiesced to shareholder proposals this year rather than let them go to a vote, and that could rise to 100.

What Should You Watch Out for This Year?

Expect more active participation from BlackRock BLK, State Street STT, and Vanguard, the big index fund providers, on issues like climate, including, potentially, voting against boards that don’t meet their expectations on climate change policy.

“Investors are going to be taking a strong look at boards and governance arrangements to understand how well companies are set up for energy transition and how resilient are their business models,” says Cook of Sustainalytics. For example, it was support from BlackRock and Vanguard that finally tipped the vote in favor of Exxon Mobil XOM publishing a climate lobbying report.

BlackRock is asking companies to disclose business plans aligned with the goal of achieving net-zero emissions. State Street has extensive guidance for the companies it owns about climate disclosures and related issues.

One related initiative: a shareholder request that Bank of America BAC, which has been outspoken in its support of net-zero emissions initiatives, adopt a policy to ensure its financing doesn’t contribute to new fossil fuel supplies inconsistent with net zero. Bank of America recommends voting against the proposal at its April 26 annual meeting.

After Bank of America, watch JPMorgan Chase JPM, which is also being asked to provide financing that’s consistent with a net-zero-by-2050 scenario. JPMorgan hasn’t filed its proxy statement yet but is expected to hold its annual meeting in May.

Climate lobbying will be a theme. For example, Meta Platforms FB, formerly Facebook, is facing a proposal for more disclosure about corporate lobbying and spending around climate issues. Investors are also seeking detailed disclosure and greater transparency about how well lobbying matches a company’s stated plans to limit global warming.

"A number of companies will say 'Climate is not one of the issues we lobby on.' But what about their trade associations?" says Smith of Boston Trust. Thanks to pressure from investors that include the United Steelworkers union, Exxon Mobil recently published its climate lobbying report, as did Norfolk Southern NSC.

After the Apple vote, expect to see more racial and gender diversity audits and related proposals. Walt Disney DIS, which holds its annual meeting on March 9, is being asked to report on human rights impacts and on pay gaps across race and gender. Engine No. 1, which last year won an unprecedented campaign to unseat three directors on Exxon's board, has said it plans to focus on diversity issues this year.

Michael O’Leary, who oversees investment stewardship at Engine No. 1, told Reuters: “You saw the way something can go from being seen as a gadfly proposal to being truly understood as a core value-driver. Just as with climate, we expect to see that spread to other issues like the workforce, and racial diversity."

This season, both Alphabet and AMZN face a raft of proposals, including reporting on racial and gender diversity. Pfizer PFE and Walmart WMT are also being asked to provide racial equity audits. ICCR members have submitted 101 diversity, equity, and inclusion proposals to companies so far this year.

You’ll see more proposals about workers’ rights, too, including proposals about paid sick leave, a living wage, and freedom of association.

How about celebrity activists? Engine No. 1 isn't mounting a major campaign but plans to publish the votes for its Engine No. 1 Transform 500 ETF VOTE. Instead, this year's celebrity investor is Carl Icahn. The billionaire, who reportedly owns 200 shares of McDonald's MCD, is pushing his own candidates for the board, asking for better treatment for pigs used in sausage.

In addition, watch out for Green Century Capital Management. CEO Leslie Samuelrich is one of Icahn's two board nominees. This early in the season, Green Century's fossil-fuel-free funds have won a couple of campaigns. This year, shareholders overwhelmingly approved a Green Century proposal for mega-retailer Costco COST to adopt a more wide-ranging plan to slash its greenhouse gas emissions and successfully pushed fast-food outfit Jack in the Box JACK to accelerate its efforts to adopt sustainable packaging.

Remember all this when you open your ballot. Happy voting.

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