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When thinking about proxy voting, headline-grabbing topics like artificial intelligence, climate change, and union relations may not be the first things that come to mind. But ESG1 topics like these are the subject of an increasing number of shareholder proposals (SHPs) each year. While U.S. companies are including a growing number of shareholder proposals on the agendas at their annual general meetings (AGMs), the abundance and topical nature of these SHPs may lead to a bumpy road ahead for their proponents, and the companies and investors involved.
In the aftermath of the U.S. Securities and Exchange Commission (SEC) relaxing its rules around no-action letters in 2021, U.S. companies have seen substantial growth in the number of environmental and social (E&S) SHPs on their ballots. According to research by ISS, 625 E&S-related proposals were submitted at Russell 3000 Index companies in 2023, up from 450 in 2020.2 Of these proposals, 356 went to a vote in 2023, up from around 200 in 2020.3 This marked the second consecutive year that E&S-related SHPs on the ballot had been at a record high.
1 The term Environmental, social and governance (ESG) refers to a set of aspects, environmental, social and governance related, that may be considered in investment. Environmental factors refer to how the company interacts with the environment, and vice versa. Examples include climate change and natural resource management. Social factors refer to how the company interacts with its employees, customers, and communities. Examples include labour practices and community relations. Governance factors refer to how the company governs itself. Examples include board structure and independence, and bribery and corruption. This refers to ESG integration/analysis and relates to equity holdings. Certain asset types, such as cash or cash equivalents, do not integrate ESG factors.
2 Institutional Shareholder Services, 2023 Proxy Season Review United States – Environmental & Social Issues, Kathy Belyeu, Michael Ellis, Enver Fitch, and Hailey Knowles
3 Not all SHPs filed necessarily end up on the voting ballot. SHPs can be withdrawn by proponents via engagement or by the company through SEC review, for instance.
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