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For the second straight year, shareholder support for environmental and social issues at US companies has waned as high-profile campaigns waged by progressive investors at ExxonMobil and Starbucks failed to gain traction.
As the season for companies’ annual meetings concluded in June, data shows median support for environmental and social shareholder proposals at Russell 3000 companies was 21 per cent and 18 per cent respectively, according to ISS-Corporate, a data provider, roughly even with last year and well below record levels for these issues in 2021.
Viewed for decades as a niche strategy, environmental, social and governance (ESG) investing boomed in 2020 with record inflows. In 2021, ESG activism scored an unprecedented win at ExxonMobil largely because of concerns about the oil major’s climate change strategy.
This year, only two climate-related shareholder proposals received majority support at Russell 3000 companies. Both proposals pushed companies to publish more information about their efforts to reduce greenhouse gas emissions.
No shareholder proposals related to diversity, equity and inclusion (DEI) have broken above 50 per cent support this year while support has declined at Adobe, Berkshire Hathaway and Eli Lilly this year, according to the Conference Board. Other major ESG fights this year included board directors at Exxon over its courtroom showdown with two climate-focused shareholders.
The drop in support highlights a mean reversion of sorts for BlackRock, Vanguard and other big asset managers, said Douglas Chia, president of Soundboard Governance, a consultancy, and a senior fellow at the Rutgers Law School.
Progressive-leaning pension funds in California and New York, as well as Norway’s oil fund, “are essentially doing the same thing that they have always done”, he said. But BlackRock and Vanguard “are backing off. They are going back to being more passive on [ESG] when they did step up and get more active for a little bit.”
BlackRock and Vanguard have supported fewer environmental and social proposals since 2021. However, BlackRock continues to show slightly more willingness to support ESG issues than Vanguard, according to a tally of their votes this season.
BlackRock voted for a proposal at fast-food chain Jack in the Box, asking the company to report more information about greenhouse gas emission reductions targets.
“Supporting the proposal may accelerate the company’s progress on climate risk management and/or oversight,” BlackRock said.
At Alico, a Florida-based orange producer, BlackRock voted against three board directors “for failure to adequately account for diversity on the board”. Vanguard voted with the companies in both instances, and both companies prevailed. Asset managers are required to report their full proxy voting records later this year.
Both asset managers declined to comment.
Vanguard this year also threw cold water on an ESG shareholder campaign at Exxon. Incensed by the oil company’s decision to sue two shareholders in court over a climate change petition, several ESG-friendly pension funds voted against board directors at the company. But Vanguard voted for the company’s board directors, who were easily reappointed at its annual meeting in May.
In another instance of ESG activism this year, labour unions tried to force three new board directors on to Starbucks’s board. But the campaign failed to go to a vote after proxy adviser Institutional Shareholder Services recommended against the union board members.
“[ESG] is going to come back from where it is now,” said David Larcker, director of the Corporate Governance Research Initiative at Stanford University. And ESG is “eventually going to focus strictly on climate issues”, he said, rather than social concerns. “I would expect to see a lot less diversity audits.”
