Proxy Season Analysis: ESG Backlash Persists, Governance Proposals Skyrocket, and Environmental Proposals Fizzle

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Oct 02, 2024, 09:00 ET

NEW YORK, Oct. 2, 2024 /PRNewswire/ -- The 2024 proxy season saw a rise in politically motivated shareholder proposals, reveals a new report by The Conference Board. Anti-ESG groups increased their activity, focusing on companies' DEI initiatives, while progressive groups continued to push for changes in line with their priorities.

While environmental and social proposals had little success in passage, governance proposals had many wins. Their success was largely driven by proposals aimed at strengthening the rights of minority shareholders, such as eliminating the supermajority voting requirement and calling special meetings.

Additional findings include:

Proposals by Anti-ESG Groups
While anti-ESG groups increased their shareholder proposal activity, their proposals continued to underperform:

108 proposals were filed and 88 were voted on vs. 91 and 65, respectively, in 2023.
It became harder for companies to negotiate a withdrawal of the proposal with these proponents, but average support remained minimal at 2% (down from 5% in 2023).

Anti-ESG groups intensified their focus on companies' climate and DEI initiatives:

15 climate-related proposals were submitted vs. six in 2023.
17 proposals addressing companies' diversity and equity practices were filed vs. five in 2023.

Social Proposals
More corporate political activity proposals went to a vote—but support remained low:

65 proposals went to a vote vs. 56 in 2023. Average support, however, dropped to 23% from 27%.

Proposals related to racial equity and civil rights audits plummeted:

15 proposals were filed vs. 39 in 2023—and those voted on fell to 7 from 25.
Average support remained relatively low, ticking down to 13% from 14%.

Human Capital Proposals
Proposals on diversity-related issues, such as workplace and board diversity, increased:

48 proposals were filed and 31 were voted on vs. 43 and 18, respectively, in 2023.
At the same time, average support decreased to 12%, down from 17% the previous year.

Gender and pay equity garnered more attention:

20 proposals were filed and 18 were voted on vs. 16 and 10, respectively, in 2023.
Despite this rise in activity, average support for these proposals dropped to 23% from 33%.

Governance proposals
The sharpest rise in volume was in governance proposals:

264 governance proposals were filed vs. 225 in 2023.
Fewer proposals went to a vote: 166 proposals were voted on vs. 191 in 2023. Average support rose to 39%, compared to 29% in 2023.

Success of governance proposals was driven by proposals relating to supermajority voting & special meetings:

Significantly more proposals aimed at eliminating the supermajority voting requirement received majority support, with 31 proposals passing vs. 8 in 2023.
Proposals advocating for companies to permit or ease the requirements for calling special meetings received higher average support, rising to 43% vs. 32% in 2023.

Environmental Proposals
Climate-related proposals remained largely the same:

98 proposals were filed and 56 voted on vs. 100 and 57 in 2023. Average support remained at 20%.

Proposals on plastic pollution increased—but their success rate plummeted:

15 proposals were filed and 10 were voted on this year vs. 11 and 7, respectively, in 2023.
Average support dropped significantly to 14%, down from 25% in 2023.

The report was produced with ESGAUGE, Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance. Findings are based on shareholder proposals submitted at Russell 3000 companies between January 1 – June 30, 2024, and a Chatham House Rule discussion with governance professionals.

Commentary:
"Companies should be prepared to navigate an increasingly polarized social, environmental, and political environment. Proactively realigning business postures and actions—and the board's oversight and governance of both—can help avoid costly and embarrassing missteps," said Richard Fields, Head of the Board Effectiveness Practice at Russell Reynolds Associates.

"Companies should maintain an active offseason engagement program to foster strong investor relationships. This involves identifying and being transparent about any potential governance changes or issues, as well as continuously educating shareholders on existing governance practices and policies to prevent misunderstandings," said Matteo Gatti, Professor of Law at Rutgers Law School.

"The lack of support around environmental and social proposals does not indicate that mainstream investors are merely yielding to external pressures or losing interest in these areas. Rather, it can be attributed to many of such proposals continuing to be overly prescriptive, costly to implement, lacking in economic value, and not company-specific," said Umesh Chandra Tiwari, Executive Director of ESGAUGE.

About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org

About ESGAUGE
ESGAUGE is a data mining and analytics firm uniquely designed for the corporate practitioner and the professional service firm seeking customized information on US public companies. It focuses on disclosure of environmental, social, and governance (ESG) practices such as executive and director compensation, board practices, CEO and NEO profiles, proxy voting and shareholder activism, and CSR/sustainability disclosure. Our clients include business corporations, asset management firms, compensation consultants, law firms, accounting and audit firms, and investment companies. We also partner on research projects with think tanks, academic institutions, and the media. www.esgauge.com

About Russell Reynolds Associates
Russell Reynolds Associates is a global leadership advisory firm. Our 500+ consultants in 47 offices work with public, private, and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today's challenges and anticipate the digital, economic, sustainability, and political trends that are reshaping the global business environment. From helping boards with their structure, culture, and effectiveness to identifying, assessing and defining the best leadership for organizations, our teams bring their decades of expertise to help clients address their most complex leadership issues. We exist to improve the way the world is led. www.russellreynolds.com

About the Rutgers Center for Corporate Law and Governance
The Rutgers Center for Corporate Law and Governance is a project of the Rutgers University School of Law, located in Camden and Newark, New Jersey. The Center is an interdisciplinary forum for research, analysis, and discussion of current issues in corporate law and governance. The Center serves as a resource for students, faculty, alumni, and the business and nonprofit communities. Its objectives are to identify and promote best corporate law and governance practices and law reform, and to build bridges between Rutgers Law School, the business and nonprofit communities, government officials, and other Rutgers University units. For more information, visit https://cclg.rutgers.edu/

SOURCE The Conference Board