Support for environmental and social proposals from shareholders of U.S. companies at their annual general meetings remained roughly the same as last year’s proxy season and well below the 2021 season peak ESG enthusiasm.
While the number of overall ESG proposals submitted by shareholders ahead of AGMs is rising, thanks to social and governance resolutions, support for environment-related proposals hasn’t moved much higher over the past two years.
This proxy season, only two environmental proposals received majority support at AGMs, a report by Freshfields Bruckhaus Deringer showed at the end of June.
The two winning proposals, both requesting companies to adopt emission reduction targets, were submitted by the Accountability Board, a relatively new shareholder advocacy group focused on the food industry. The group won more than 50% support at the AGMs of Wingstop and Jack in the Box.
Of the 11 Just Climate Transition proposals, average support was 18.2% as of the middle of June, according to Freshfields analysis of ISS data.
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Data provider ISS-Corporate said that among the Russell 3000 companies, median support for environmental and social shareholder proposals was 21% and 18%, respectively, the Financial Times reports.
Recently, there has been a notable rise in anti-ESG proposals that have challenged the implementation of climate or social initiatives, ISS Corporate said mid-way through the proxy season. However, anti-ESG proposals haven’t seen any success at the ballot box despite the continued surge in volume, with median support level at 1.6%.
“The anti-ESG movement continues to gain momentum. Although support for proposals remains minuscule, proponents and proposals are increasing, anti-ESG proponents and entities are using notices of exempt solicitation and antiESG shareholder engagement trends align with the legislative, political and media anti-ESG pressures,” Freshfields said in its report in June.
While support from shareholders for ESG proposals hasn’t seen much change over the past two years, this shareholder voting season saw a precedent in large companies fighting activist investors over climate resolutions.
ExxonMobil, the U.S. oil and gas supermajor, sued Arjuna and Follow This in a Texas district court, aiming to block their climate proposals from going to a vote at the annual shareholder meeting, in the first such direct complaint to court instead of to the Securities and Exchange Commission (SEC).
The two investors had filed a proposal for Exxon’s shareholders to vote to have Exxon commit to further emissions reductions, including Scope 3 – emissions from the product it sells.
After Exxon filed the lawsuit, Arjuna withdrew the contested proposal and “unconditionally and irrevocably” promised to stop submitting similar proposals.
The lawsuit and the dispute which Exxon chose to pursue in court, instead of at the SEC, highlighted the growing divide between small activist shareholders and major oil and gas companies that are fed up with their day-to-day business challenged by proposals for shareholder resolutions.
“Our lawsuit put a spotlight on the abuse of the shareholder-access system," Exxon said in a statement carried by Reuters.
Exxon’s critics say that the supermajor’s lawsuit against the two activist shareholders this year will chill future efforts of shareholders to seek climate accountability from Big Oil.
In another high-profile AGM this season, Norway’s $1.66-trillion sovereign wealth fund, the world’s biggest, sought details on the updated strategy of another oil major, Shell.
The Norwegian fund encouraged Shell “to make additional strategy disclosures that could reduce uncertainty about the company’s direction in the mid-2030s.”
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The fund, however, aligned with Shell’s management recommendation and voted against an independent resolution to make the supermajor align its medium-term Scope 3 emissions reduction targets with the goal of the Paris Climate Agreement.
That resolution gained only 18.6% of shareholder support, while the resolution on Shell’s strategy that eases some interim emissions targets was supported by 78% of the votes.
Meanwhile, sustainable funds flows this year have shown the growing divide between Europe and the U.S. on ESG investing. Investor appetite for ESG funds and other sustainable investments remains steady in Europe, in stark contrast with the United States, where the ESG backlash has had investors pull billions of U.S. dollars out of sustainable funds over the past year.
In the first quarter for 2024, global sustainable funds saw net new flows and despite the overall decline, European sustainable funds registered nearly $11 billion of inflows, more than double from the previous quarter, according to Morningstar’s Q1 2024 review. While Europe held resilient, U.S. sustainable funds saw their worst-ever quarter with $8.8 billion in outflows, Morningstar noted.
By Tsvetana Paraskova for Oilprice.com
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