A new analysis indicates that:
Average support for shareholder proposals focused on environmental and social (E+S) issues has more than doubled among U.S. companies, according to “Key Characteristics of Prominent Shareholder-sponsored Proposals on Environmental and Social Topics, 2005-2011,” a recently released study from the IRRC Institute (IRRCi).
Specifically, from 2005-2011, average support for these types of proposals more than doubled, from about 10% to more than 20%, according to the analysis provided in the report.
Such shareholder proposals generally call for policy changes on social or environmental issues that may or may not have a substantial impact on a company’s bottom line, but focus on sensitive issues such as climate change, employee discrimination, operations in exploitive overseas markets, toxic products, and sustainability.
As the report shows, there is an increasing tolerance, even acceptance in such shareholder proposals, evident in the fact more are gaining increased voting support from shareholders at U.S. public companies.
As indicated in the report, the proportion of shareholder-sponsored resolutions on E+S-related issues swelled by a third, to 40 percent from approximately 30% to 40%, for all proposals going to a vote in the period studied.
In fact, in 2011, five E+S proposals garnered majority support, as compared to a single report in 2005.
“Investor attitudes about extra-financial issues seem to be undergoing a sea change. It wasn’t that long ago that these were regarded by most mainstream investors as abstract issues, viewed as only tenuously linked to bottom line concerns. Today, however, an increasing number of investors seem to regard some E+S proposals as an early warning system for issues that will demand attention from corporate managements and boards because of the implications for corporate sustainability and long-term shareholder value,”
Jon Lukomnik, IRRCi executive director, stated in release issued with the debut of the report.
“Topics that command large numbers of proposals and higher votes include political spending, climate change, board diversity and energy extraction. When momentum grows behind a prominent proposal, it may be a predictor of potential changes to company practices and shifting investor priorities. In some cases, these views may become so widely shared that other stakeholders may turn to policymakers to request changes across an industry. Of course, not every topic commands broad prominence. But those that do tend to have certain shared characteristics,”
Lessons Learned from Report for Other Investor Activists
What does this mean?
The study finds three characteristics appear to be connected with highly prominent environmental or social shareholder proposals. As stated in the report:
- Targeting. Proposals at companies where investors raise concerns over board performance received higher voting support. This reflects not only investor-perceived concerns over the related E+S issue, but also a perceived need for other governance-related change.
- Timing. Proposals connected to current events gain prominence from their association with the headline-making events and/or related attention. Proposals also gain prominence if related to ongoing trends and developments in the regulatory, legislative and global arenas, as well as among industry-specific peers and “leading companies,” as defined by proponents.
- Sponsor. Prominent proposals tend to be associated with, and supported by, two types of proponents: (1) “Socially Responsible Investors” (SRI), defined as institutions which explicitly state that they seek both investment returns and social impact, and (2) public pension funds. These investors play a leading role in shaping the shareholder proposal—and by extension, the engagement—landscape. By contrast, proposals submitted by special interest groups or individuals tend to receive lower levels of support.
Despite the progress indicated in the report, investors submitting E+S-related proposals still face an uphill battle, especially if the policy change cannot be tied directly to a substantial improvement for the company’s bottom line.
But, this is progress and we’re headed in the right direction. Investors should take heart that we’re headed in the right direction.
Ernst & Young LLP was the primary research entity for, and the primary contributor to, the report.
The Investor Responsibility Research Center Institute is a not‐for‐profit organization established in 2006 to provide thought leadership at the intersection of corporate responsibility and the informational needs of investors. IRRCi ensures its research is available at no charge to investors, corporate officials, academics, policymakers, the media, and all interested stakeholders.
To contact Craig McGuire directly, please email Craig.McGuire@TheShareholderActivist.com.