Shareholders’ attitudes towards Environmental, Social, and Governance (ESG) proposals have been shifting, with a notable increase in support for corporate governance changes. The focus on “G” in ESG has gained more traction this year compared to “E” and “S” proposals, according to ISS-Corporate data analyzed by law firm Freshfields.
An analysis of 154 governance proposals that came to a vote between January and June revealed that 38 were successful. These successful proposals often revolved around eliminating supermajority vote requirements for important company actions, such as at Nvidia. By empowering shareholders to call special meetings or requiring all directors to stand for reelection each year, these governance changes aimed to enhance transparency and accountability within companies.
The success rate for governance proposals (25%) exceeded that of environmental and social proposals that focused on reducing greenhouse gas emissions, sustainable supply chain practices, and diversity, equity, and inclusion (DEI) targets. Only two environmentally focused proposals gained majority support, while only one social proposal passed, highlighting the challenges faced by “E” and “S” initiatives.
One possible explanation for the divergence in support for “G” versus “E” and “S” proposals is the lower level of political scrutiny surrounding governance changes. Recognized corporate governance attorney Michael Arnold suggests that proposals targeting governance are perceived as less prescriptive and therefore enjoy broader shareholder support.
While ESG and DEI have been prominent issues during the 2024 presidential campaign, with some anti-ESG and anti-DEI sentiments gaining momentum, companies have faced pressure to revisit and in some cases retract existing policies. Tractor Supply and John Deere, for instance, announced adjustments to their DEI initiatives in response to shareholder concerns.
Freshfields’ Pam Marcogliese suggests that the rejection of many “E” and “S” proposals this year may reflect shareholder satisfaction with companies’ ESG efforts to date. Investors may view these proposals as incremental changes that might not significantly impact a company’s overall ESG performance.
The rise in successful governance proposals signals shareholders’ growing comfort with endorsing governance changes that enhance shareholder rights and transparency. Proposals to replace supermajority vote requirements with simple majority voting standards have gained popularity, enabling shareholders to play a more active role in decision-making processes within companies.
Despite the success of governance proposals, not all proposals found equal footing this year. Proposals to split the CEO and board chair positions faced notable opposition, with none passing. This demonstrates the varying degrees of support for different governance-related changes among shareholders.
At Extreme Investor Network, we understand the nuances of ESG proposals and the evolving landscape of shareholder activism in today’s financial markets. Stay informed about the latest trends in ESG investing and corporate governance by visiting our website for in-depth analysis and expert insights.