Proposals on Climate Disclosures Gained Momentum in 2022

In the 2022 Proxy Season, Proposals on Climate Disclosures and Racial Equity Audits Gained Significant Momentum

The 2022 proxy season was a banner year for shareholder proposals relating to climate disclosures and racial equity audits, reveals a new analysis conducted by The Conference Board in partnership with ESG data analytics firm ESGAUGE.

In the Russell 3000, a record 101 climate-related precatory shareholder proposals were filed and 11 obtained majority support at the annual meeting–also a record. Of the 43 filed shareholder proposals on racial equity and civil rights audits, eight passed, compared to none in 2021. Several of these proposals on climate disclosure and racial equity audits succeeded at some of the biggest US companies, reflecting the proponents’ approach of targeting prominent businesses where the proposals are more likely to attract media attention.

This proxy season saw a continued decline in support for board-endorsed candidates in director elections. Average support for such candidates has gradually declined from 98 percent in 2017 to 94 percent in 2022. At the same time, the number of directors receiving between just 50 percent and 70 percent support spiked, from 83 in 2017 to 290 in 2020 to 442 in 2022, demonstrating that shareholder concerns about governance and executive compensation are being reflected in votes against directors. 

The Conference Board study, Shareholder Voting Trends, provides an overview of shareholder resolutions filed at Russell 3000 and S&P 500 companies from January through mid-July 2022. It was produced with ESGAUGE, leadership advisory and search firm Russell Reynolds Associates, and Rutgers University’s Center for Corporate Law and Governance.

The suite of publications includes an Executive Summary and three Briefs that provide a detailed examination of the 2022 proxy season, focusing on 1) environmental and climate-related proposals; 2) human capital management and social policy proposals; and 3) governance proposals, say-on-pay votes, and director elections. The analysis is based on a Live Dashboard, which contains the most current figures and allows for data cuts by market index, business sector, and company size group.

The analysis includes the following findings and insights for what’s ahead:

1)    Environmental and Climate-Related Proposals

In 2022, proposals on climate-related disclosures saw record filings and record passage

• Proposals filed: In 2022, shareholders filed 101 climate-related proposals in the Russell 3000.
  • That is up from 60 resolutions in the same period in 2021, 50 in 2020, and 70 in 2019.

• Proposals passed: Most importantly, the number of proposals that received majority support is rising. Of the 101 climate-related proposals filed, 11 passed—a record. Their recipients include large companies such as Boeing, Caterpillar, Chevron, Chubb, Costco, and Exxon Mobil.
  • By comparison, eight proposals passed in 2021, three passed in 2020, and zero passed in 2019.

• Climate-related proposals—examples: Requests for disclosure on climate-related issues include the company’s current carbon footprint; the mitigation targets it has set to align with the Paris Agreement’s standards; and the impact that rising temperatures can have on business operations.

“While investors, regulators, and others care about risks that climate change poses for companies in general, they are especially focused on the impact that companies with significant greenhouse gas emissions are having on climate,” said Matteo Tonello, author of the study and Managing Director of ESG Research at The Conference Board. “If they haven’t already, those companies should consider gathering information on the costs and benefits of designing an emission-reduction strategy that includes targets and timelines.”

2)    Human Capital Management and Social Policy Proposals

In 2022, a record number of human capital management proposals were filed and passed

• Proposals filed: In 2022 at Russell 3000 companies, shareholders filed 155 human capital management-related proposals.
  • That is up from 136 in 2021, 11 in 2020, and 12 in 2019.
     
• Proposals passed: Of the 155 proposals, 14 passed.
  • By comparison, 13 passed in the same period in 2021, five passed in 2020, and three passed in 2019.

Racial equity and civil rights audits: the new, hot-button human capital management issue

• Proposals filed: In 2022, Russell 3000 shareholders filed 43 proposals requesting companies to commission a racial equity or civil rights audit.
  • These third-party audits seek to determine whether companies’ products or services or corporate practices impair the civil rights of stakeholders (e.g., customers, employees), including ethnic and other minorities.

• Proposals passed: This year, 31 of the 43 civil rights audit proposals were voted on, and eight passed.  
  • This proposal type was first introduced in 2021, when nine filed proposals went to a vote, but none received majority support.

• Employee arbitration proposals gain momentum: Four shareholder proposals on employee arbitration policies passed in 2022, up from only one in each of the last two proxy seasons.

• None passed—proposals on board diversity, workplace diversity, disclosing EEO-1 data: In 2022, shareholders voted on 11 proposals on board diversity, five on workplace diversity, and two on divulging EEO-1 data on workforce demographics and its breakdown by gender and race.
  • While 10 proposals in those categories were successful last year, none of the proposals passed in 2022.   

“In recent years, corporate directors have been particularly sensitive to issues of corporate culture and workplace bias. Due to prior instances of wrongdoing or the results of their own investigations, some boards may have reason to believe that their companies face litigation and reputational risks in this area. If so, directors could conclude that an independent audit is the best risk mitigation strategy, as it may go to the root of the cultural issues and preempt bigger problems down the road,” said Umesh Chandra Tiwari, Executive Director of ESGAUGE.

Corporate political spending remains a focus for shareholders

• Proposals filed: In 2022, shareholders in the Russell 3000 voted on 53 political spending proposals.

• Proposals passed and support level: Of the 53 proposals, four passed: two on disclosure of monetary contributions offered to political campaigns, and two on lobbying activities.
  • 11 of the 53 proposals reached a support level of more than 40 percent of votes cast.

3)    Governance Proposals, Say-on-Pay Votes, Director Elections

On the decline: support for company proposals on say-on-pay resolutions

• Failed say-on-pay (SOP) votes: In 2022, 67 companies in the Russell 3000 failed their SOP votes (up from 61 in 2021, 45 in 2020, and 50 in 2019).
  
  
• Support level of 70 percent or lower: 143 companies received a support level of 70 percent or lower (up from 102 in 2021, 109 in 2020, and 124 in 2019).
  • Receiving less than 70 percent for votes is often seen as the threshold that may lead to additional scrutiny of companies’ executive compensation programs from proxy advisors and investors.

On the decline: support levels for board-endorsed candidates in director elections

• Directors’ election support level: In the Russell 3000, the average support level went from 98.2 percent of votes cast in 2017 to 95.1 percent in 2020 to 94.1 percent in 2022.

• Directors failing to receive majority support: Only seven directors in the entire index had failed to receive majority support in 2017, while the number climbed to 50 in 2020 and 75 in 2022.
  • Similarly, the number of directors who received less than 70 percent of votes cast was only 83 in 2017 but rose to 290 in 2020 and 442 in 2022.

“While many factors can lead to a decline in investor support for directors, proxy advisors and major institutional investors have recently amended their voting policies to indicate their intention to hold specific board members accountable in situations of material ESG failures, which may include large-scale or repeat workplace fatalities or significant environmental incidents,” said Justus O’Brien, co-lead, Board and CEO Advisory Partners Practice at Russell Reynolds Associates. “Board members and C-suite executives should therefore remain educated about ESG issues of concern to the investment community and the proxy advisors that often influence institutional votes.”

Some investors are now specifically targeting smaller firms on declassifying boards and adopting a majority voting standard

• Governance-related shareholder proposals: By far, the most common governance-related shareholder proposals are those requesting shareholders’ rights to call special shareholder meetings (114 filed in 2022, 109 voted, with average support of 35.8 percent), and those to separate the CEO and board chair positions (48 filed, 37 voted, with average support of 27.6 percent).

• Declassifying the board and adopting a majority vote standard: At the same time, investors are submitting shareholder proposals at smaller firms to enhance shareholders’ ability to change the composition of the board. In 2022, shareholders passed all five proposals that were voted on to declassify the board structure, with average support of 84.7 percent.
  • Shareholders also approved four of the six voted proposals to change the standard for the election of directors from plurality to majority voting, with average support of all six proposals at 53.2 percent.

“While some smaller companies have remained under the radar due to their size, this may change. Plurality voting and staggered boards can be seen as protections against activism, but as shown by these shareholder proposals, they can also invite activism,” said Professor Douglas Eakeley of the Rutgers Center for Corporate Law and Governance. “In addition to functioning as a defense from hostile takeovers, staggered boards can also be perceived as an impediment to board refreshment. Companies may wish to consider shifting to annual elections if it helps them adjust the composition of the board in a way that keeps pace with strategic needs.”

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 The Conference Board ESG Center
The Conference Board ESG Center serves as a resource, platform, and partner to help Member companies address their priorities in corporate governance, sustainability, and citizenship. www.conferenceboard.org/esg 

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 U.S. 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.

About Russell Reynolds Associates
Russell Reynolds Associates is a global leadership advisory firm. Our 520+ 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 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/