Environmental, Social & Governance Briefs

Earlier this year, we published a groundbreaking report on corporate political activity in the wake of the January 6th riot, and we have another Chatham House roundtable on this subject exclusively for ESG Center members coming up.

This blog post focuses on shareholder proposals during the 2021 proxy season on three subjects: (1) political contributions, which traditionally seek disclosure of campaign financing policies and practices, but increasingly ask companies to explain how political expenditures align with their corporate values and policies—apart from their climate-related statements; (2) traditional lobbying, which typically ask for disclosure on companies’ lobbying policies and practices; and (3) climate-related lobbying, a fairly new topic asking companies to explain how their lobbying efforts align with the Paris Climate Agreement. 

We’re tracking and reporting on these – and other – shareholder voting trends at Russell 3000 firms in partnership with ESG data analytics firm ESGAUGE, leadership advisory and search firm Russell Reynolds Associates, and Rutgers University’s Center for Corporate Law and Governance.

Here are some of the key observations on corporate political activity proposals in 2021:

• The overall volume of filed corporate political activity proposals in 2021 remained steady compared to last year, but the focus on climate-related lobbying increased. In the Russell 3000, during the first half of 2021, shareholders filed 64 proposals on political activity, essentially flat with 66 in the same period last year. While the number of proposals filed on political contributions remained essentially steady in 2021 compared to 2020 (26 versus 27, respectively), shareholders filed fewer proposals on traditional lobbying (27 in 2021 versus 35 in 2020), but there was a rise in climate-related lobbying (11 in 2021 versus 4 in 2020).

•  Achieving compromise on proposals on corporate political activity was more difficult than on most other topics. But it was easier to reach negotiated resolutions on political contributions and climate-related lobbying proposals than it was on traditional lobbying proposals: 38 percent of proposals on political contributions and 45 percent of climate-related lobbying were withdrawn in 2021. By contrast, only 15 percent of traditional lobbying proposals were withdrawn.  This indicates that companies were less able to find common ground on traditional lobbying proposals than on other political activity proposals. 

• As with other E&S shareholder proposals, support for shareholder proposals on corporate political activity reached record levels (43% in 2021 versus 36% in 2020). Of more than 20 different topics covered by E&S shareholder proposals in 2021, proposals on climate-related lobbying had the second-highest level of average support—at 61 percent (versus 42 percent in 2020)—behind only EEO-1 data disclosure proposals, which averaged 69 percent. Moreover, the 46 percent average support for political contribution proposals and 37 percent for traditional lobbying were well above the average 32 percent support for all E&S proposals, as well as higher than the 40 percent and 32 percent they respectively garnered last year.

• While companies in all business sectors face scrutiny for their political activities, those in energy, utilities, and industrials received all proposals voted on climate-related lobbying. Companies in the industrials and health care sectors received the most filed and voted proposals on traditional lobbying and political contributions.

What does it mean for 2022?

Political contributions: Expect the volume of proposals on political contributions submitted to a vote to continue to decline, as companies are ramping up disclosures on their political contributions and were able to negotiate a withdrawal of more than 80% of these proposals earlier this year.

Traditional lobbying: This will likely remain an area of tension between companies and shareholder proposal proponents, especially for those companies whose lobbying efforts are in contrast with their positions on broader E&S issues.

Climate-related lobbying: Anticipate a sustained push on this topic, given the high level of support for these proposals. We expect such proposals, however, will largely continue to target companies in the energy, utilities, and industrials sectors.

To prepare for shareholder proposals on these issues, CEOs and their boards can take concrete steps, including (1) increasing board oversight – not only of their corporate contributions but also of their lobbying activities, (2) expanding disclosure to investors and other stakeholders regarding their firm's types of political activity and the policies and controls in place, and (3) aligning political activity with corporate values and vetting all political activity to ensure public policy positions are aligned with broader corporate citizenship positions. These steps may not prevent shareholder proposals, but they will put companies in a better position in dealing with them.

If you’d like to drill down on this year’s vote results, you can sign up for a demo of the ESG Advantage Shareholder Voting Screening Tool. It lets you generate customized reports on shareholder and management proposals based on topic, proponent, outcome, and company from 2018 through the current proxy season in the full Russell 3000. Best of all, with a single click, you can see the text of the proposal and the vote results — no need to navigate multiple filings or databases.