This
article from Morningstar published on the
Harvard Law School Forum on Corporate Governance examines three major trends of the 2024 proxy season regarding environmental, social and governance shareholder proposals. The author, the Director of Investment Stewardship Research at Morningstar, reports that, while the number of ESG-related proposals increased, there was a “twist in the tale”: the increase primarily reflected a jump in anti-ESG proposals. Although support for ESG proposals on the whole was relatively flat at 23%, Morningstar found a “rebound in support for governance-focused proposals,” offsetting a decline in support for E&S proposals.
Growth in anti-ESG proposals. While the number of ESG proposals continued to grow this year, the growth rate of only 3% was somewhat slower than in past proxy seasons, when the reported growth rate was 12% (2023) and 19% (2022). However, the author reports, for “the first time, the growth in new resolutions was dominated by proposals from ‘anti-ESG’ filers—those seeking to advance strongly conservative, or net zero skeptic social policy aims.” Data from Morningstar showed that the number of conventional ESG proposals stayed flat relative to last year—there were 557 conventional ESG proposals submitted for votes in the 2023 proxy season and 558 in 2024; the number of anti-ESG proposals increased substantially, however, from 48 in 2022 to 67 in 2023 and 87 in 2024.
But that doesn’t mean there was much shareholder support. According to Morningstar, the average support level for anti-ESG proposals was only 2%, a decline from 9% two years before. But maybe the point of these proposals, the author suggests, is really “to gain attention rather than shareholder support.”
As noted above, average support for ESG proposals for the 2024 proxy season was 23%, or 26% excluding anti-ESG. The high point for support came in 2021 at 36%, but it’s been downhill since. As discussed below, however, that average support was likely inflated by the rejuvenated level of support for governance proposals, the often-forgotten “G” in “ESG.”
Rebound in governance proposals. Morningstar reports that, since 2022, governance-related shareholder proposals have made up “less than half the total number of shareholder proposals each year.” The number of conventional governance proposals fell from 296 in 2021 to 235 in 2024. (Quite surprising, if you step back and consider how prominent—perhaps even dominant—governance was as a topic of shareholder proposals in years past.)
Although the number of governance-related shareholder proposals declined, the author advises that proposals “seeking to bolster shareholder rights were popular, leading to a rebound in support for governance-focused proposals, from 30% in the 2023 proxy year to 35% this year.” Morningstar data shows that support peaked in 2021 at 37%, falling to 30% in 2023 and then jumping up to 35% in 2024. The author attributes the 2024 increase to “a large number of very well-supported proposals focused on safeguarding shareholder rights.”
Support for E&S proposals declines. According to Morningstar data, the number of environmental and social proposals—the two other components of ESG—has increased substantially, including both conventional and anti-E&S proposals. In 2021, the number of conventional E&S proposals submitted for votes was 171, increasing to 256 in 2022, 305 in 2023 and 323 in 2024. The number of anti-E&S proposals rose from 39 in 20-22 to 79 in 2024.
With regard to support for E&S proposals, Morningstar reports that the increased support for governance proposals was offset by the continued decline in support for E&S proposals, which fell to 16% in the 2024 (19% excluding anti-ESG proposals), from 19% in 2023 (22% without anti-ESG proposals), 28% in 2022 (31% excluding anti-ESG proposals), and 33% in 2021. The author pointed to asset managers BlackRock and Vanguard, among others, which last year “lamented a high volume of what they perceive as ‘low quality’ or ‘redundant’ environmental and social resolutions, both pro- and anti-ESG. Based on this year’s data,” he concluded, “it looks safe to assume that they still hold that view.”
The author observes that the decline in support was coincident with “signs of increasing exasperation on the part of some targeted companies,” illustrated most prominently by the ExxonMobil litigation against Arjuna Capital, LLC and Follow This, in which Exxon sought to exclude their proposal from its proxy statement. While some institutional shareholders condemned Exxon’s action, the author suggests that “this year’s voting results indicate that other such shareholders may think that Exxon had a point regarding the growing number of environmental and social proposals with contestable aims.”
Have a great Labor Day!
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