Proxy Season – ESG Redux

We’re in the midst of proxy season in which publicly traded companies report on the current state of corporate affairs to their shareholders during an annual meeting and through related communications including an annual report and proxy statements.  State law requires public companies to hold an annual shareholders’ meeting and the Securities and Exchange Commission (SEC) mandates that registered companies file their proxy statements in advance of the annual meeting as the proxy details the resolutions upon which shareholders will vote.   

Most companies schedule their annual meeting at an interval allowing for financial statements to be prepared and audited after the close of their fiscal year.  The corporate and investment communities wait with bated breath for the announcement of engagement priorities from BlackRock and other asset managers, as well as voting guidelines from the likes of Glass Lewis and ISS.  I’ve had a front seat to proxy season for some time and often played corporate defense on overreaching shareholder proposals.   

The shareholder proposal has always been an arrow in the quiver of changemakers and value creators to catalyze boards and management toward better corporate governance, but, recently, the proxy process has been co-opted by some groups seen as agitators and headline grabbers.  For example, the volume – both in number and noise – of anti-ESG resolutions which often attack anti-discrimination policies has risen in recent years.  There continues to be a lack of traction on those resolutions as they fail from the mainstream investor perspective, yet they reap a disproportionate share of the headlines.    

ESG-related proposals continue to dominate the 2023 proxy season, as they have in past years.  The number of proposals is expected to surpass last year’s high mark of 627.  That is owing to the pressing nature of the current environmental and social issues, the augmented media coverage and the fact that the SEC revised its rules governing the process to narrow the grounds by which companies may exclude shareholder proposals.  The three primary ESG topics shaping this year’s season are:  

(1) climate change, with a particular focus on GHG emissions reduction plans; 

(2) political influence, in the form of values alignment, lobbying/third-party spending and political disclosure; and, 

(3) social policy, including diversity and human rights.  

We’ve seen more prescriptive proposals seeking to direct board and management decision-making repeatedly fail.  The most meritorious resolutions are those that push for transparency, disclosure and enhanced board oversight of key risks.  That aligns with the principles of ESG.  The primary shifts we’ve seen over the past decade in ESG practice is that boards have become:  

(1) more informed on ESG issues and the key ESG risks to longterm business strategy;  

(2) more aware of their fiduciary obligations with respect to overseeing ESG issues and risk; and, 

(3) more attuned to all stakeholders – shareholders, investors, regulators, employees, customers and communities – in overseeing ESG goals, metrics and strategy.    

Those shifts, along with the push for diversity in the ranks of corporate directors, have created meaningful governance changes around “E” & “S” issues and enhanced long-term value for publicly traded companies.