An insight into the 2023 peak season
April 28, 2023
With the 2023 proxy season well underway, it is looking like it could be another record-breaking year for environmental, social and governance (ESG) shareholder proposals. In the United States the three biggest shifts we have seen this season so far are the introduction of proposals pertaining to reproductive health, an increase of climate change proposals and a newfound emphasis on political congruency. We have also seen anti-ESG proposals continue to rise through these new avenues such as political congruency to try and undermine a company’s efforts on the matter.
Key Focus Areas
In 2023 there has been an increase in shareholder activism on reproductive health which can be attributed to the U.S. Supreme Court’s decision to take away the constitutional right to abortion with the overturning of Roe v Wade. It is now being seen in real-time causing waves in corporate governance as shareholders ask boards to report on how they are monitoring, reviewing and responding to potential risks. 2022 was the first proxy season at which shareholders filed proposals on reproductive health and the number has doubled in 2023.
Political congruency has also seen a sharp increase in proposal rate as shareholders look to ensure company political spending runs in parallel with a company’s policies and stated values. This has resulted in an increase in political activity-focused proposals and an expansion from the previous focus on seeking enhanced disclosure around political expenditure and lobbying.
Climate change remains a key focus area for shareholders, and proposals on climate strategy remain prominent. In 2023 there is a continued emphasis on GHG emission reduction targets and newer proposals such as financed emissions at banks, and climate-related lobbying. In 2023 oil and gas companies will face proposals asking for audited reports about how asset retirement obligations affect net zero calculations.
Anti-ESG Proposals
Anti-ESG proposals continue to be prominent in the 2023 peak season with an approximate 66% increase in filings as of April 2023 compared with 2022. The National Center for Public Policy Research and the National Legal and Policy Center continue to file the majority of these proposals. The most frequently filed proposals aim at highlighting a company’s ties to ‘Communist China’, asking for reports on corporate political influence, raising concerns that diversity & equality initiatives are discriminatory and an examination of the negative results of acting on climate change.
The so-called ‘anti-ESG’ proposals often use very similar wording of the proposals filed by ESG-focused shareholders to try and garner support. Minerva classifies these proposals as ‘shadow proposals’ whereby the resolution wording is nearly identical to other proposals filed by institutional investors. Still, a political spin is hidden in the supporting statement. So far these shadow proposals have failed to receive high shareholder support.
Regulatory Changes
There are several factors for the increase in shareholder proposals in recent years, including the success in obtaining majority votes in 2021 and increased recognition of the materiality of ESG and the impact ESG factors can have thereby necessitating the need for companies to report on them.
In the USA, regulatory changes from the Securities and Exchange Commission (SEC) in November 2021 can also be attributed to the increase in filings for ESG proposals. In November 2021, new guidance (Staff Legal Bulletin No. 14L) was issued which rescinded the previous guidance of focusing on a proposal’s significance to the specific company’s business. The new guidance will instead see staff assess whether a proposal raises issues with a broad societal impact that transcends the ordinary business of the company. Since the release of SLB No. 14L, there has been a marked decrease in the success of no-action requests.
On July 13, 2022, amendments were proposed by the SEC to Rule 14a-8. The amendments revise three of the potential bases for a company to exclude a proposal: “substantial implementation,” “duplication” and “resubmissions”. The emphasis on these amendments is the continued appreciation for shareholders with the aim of improving their communication rights and ability to converse with companies. It appears that the potential allowance for duplication of proposals along with the other changes will most likely make it more difficult for companies to exclude proposals from proxy materials.
For more information from Minerva on the 2023 proxy season, download the 2023 Proxy Season Preview.
Last Updated: 28 April 2023