U.S. Proxy Voting Season Spotlight: ESG-Focused Shareholder Resolutions

The US proxy season runs through Q2 (April to June) and is one of the most watched and contested times for shareholder meetings globally. Issues tabled and voted on by shareholders set the context for year-round engagement between shareholders and company management.

Sustainalytics’ ESG Proxy Voting Overlay looks at several signals and indicators to identify and develop recommendations on ballot items that afford the most leverage to improve ESG performance.

Below we will take a closer look at voting trends as well as changing sentiments in the ESG landscape.

Growing Numbers, Continued Support

Building on 2021 successes, the 12-month period up to the end of the 2022 proxy season (30 June 2022) saw a sharp increase in the number of ballot measures tabled for vote across a broader range of ESG issues. 

Chart 1: US ESG Shareholder Resolutions: 2015-2022

^{Source: Morningstar’s Proxy Voting Database. Data as of 31 July 2022}

While average support for ESG measures tapered in 2022 - from the record high of 34% for the year ending June 2021 to 30% for the same period ending in June 2022 - the number of resolutions achieving majority support rose to 40 in 2022 from 36 for the same period ending in June 2021, attributable to the higher volume of resolutions filed.

Chart 2: Majority-Supported ESG Resolutions: 2015-2022

^{Source: Morningstar’s Proxy Voting Database. Data as of 31 July 2022}

ESG shareholder resolutions are non-binding, even if they pass with majority support. However, in practice, they can influence corporate action at thresholds well below 50% support.

Comparing H1 2021 with H1 2022, the number of resolutions with greater than 40% support expanded from 40 to 66.

Chart 3: More Shareholder Resolutions Exceed 30% Threshold in H1 2022, Compared to H1 in Previous Years

^{Source: Morningstar’s Proxy Voting Database. Data as of 31 July 2022}

Selected ESG Themes from 2022

Investor goals for biodiversity are coming into greater focus with the COP26 Deforestation Pledge and the ongoing work on the post-2020 Global Biodiversity Framework. Following strong results on deforestation resolutions in 2021, resolutions addressing ocean plastic pollution and plastic waste reduction achieved especially high support in 2022.  Notably, an early season resolution at fast-food chain Jack in The Box, filed by Green Century Management, earned 95% support over the board’s ‘against’ vote recommendation, urging the fast-food chain to accelerate its sustainable packaging efforts.

Plastics Resolutions Voted at US Companies in H1 2022

^{Source: ESG Voting Policy Overlay, Data as of 31 July 2022}

Big Tech Attracts Supersized Ballots

Tech companies’ rapidly expanding political, social, and economic relevance requires specific focus and emphasis on governance arrangements to manage ESG risks and opportunities. Not surprisingly, investors are leveraging the proxy ballot to spur governance and ESG reforms: Five large US tech companies accounted for 52 ESG-focused shareholder resolutions in H1 2022.

Chart 4: ESG Resolutions Voted at Large Tech Companies

^{Source: ESG Voting Policy Overlay, Data as of 31 July 2022}

At Meta and Alphabet, where founders control the majority of votes via separate share classes with ten votes per share, six ESG resolutions likely received majority support from independent shareholders on each ballot. Issues specific to large tech companies span content governance on social media platforms, data security, societal impacts of surveillance technology licensing, and improved workplace practices.

Say-on-Pay: Backlash Against Outsized Pay is Brewing

Market conditions in 2021 drove CEO pay even higher. Proxy ballots released ahead of the H1 2022 AGM season reveal record-high levels of pay at large US companies. At the same time, support for management’s advisory vote on executive pay (or ‘say on pay’) declined for a 5^th consecutive year to a record low of 87.7% averaged across the largest 500 companies.  This should sound an alarm for boards. As inflation eats into workers’ real wages, we anticipate stronger backlash against outsized CEO pay packages and more scrutiny of the structure of incentives – particularly ESG-linked incentives.

^{Source: Morningstar Sustainalytics}

Morningstar Sustainalytics’ supports a holistic approach to stewardship as our dedicated team continues to monitor and report on changing voting sentiments and trends. The ESG Voting Policy Overlay offers voting recommendations aligned with widely accepted ESG principles, sustainability objectives, and ongoing corporate engagements with proven traction among investors.

We firmly believe that collaboration between investors and companies produces the best outcomes for both parties. Our dedicated team is committed to refining and extending the Morningstar Sustainalytics ESG Voting Policy Overlay program to keep pace with the rapidly evolving ESG investing landscape. We foster constructive investor-company interactions and create continuity between the exercise of voting rights and the influence investors bring to bear in ongoing dialogue with investee companies. Our voting recommendations will continue to identify and deliver opportunities for investors to leverage their voting rights to advance dialogue and, ultimately, strengthen corporate accountability.

You can access Morningstar Sustainalytics’ latest ESG Voting Policy Overlay report here.