From the IRRC Institute
A new analysis indicates that environmental and social (E+S) shareholder proposals are gaining increased voting support from investors at U.S. public companies. From 2005-2011, average support for these proposals more than doubled, from about 10% to more than 20%. At the same time, the proportion of shareholder-sponsored resolutions on E+S matters grew by a third, from about 30% to 40%, for all proposals going to a vote. Also, the proportion of higher scoring proposals increased as indicated in the chart below.
The new study, Key Charactericstics of Prominent Shareholder-Sponsored Proposals on Environmental and Social Topics, 2005-2011, was released by the IRRC Institute (IRRCi). Ernst & Young LLP was the primary research entity for, and the primary contributor to, the report.
“Investor attitudes about extra-financial issues seem to be undergoing a sea change. It wasn’t that long ago that these were regarded by most mainstream investors as abstract issues, viewed as only tenuously linked to bottom line concerns. Today, however, an increasing number of investors seem to regard some E+S proposals as an early warning system for issues that will demand attention from corporate managements and boards because of the implications for corporate sustainability and long-term shareholder value,” said Jon Lukomnik, IRRCi executive director.
The study finds three characteristics appear to be connected with highly prominent environmental or social shareholder proposals:
Proposals at companies where investors raise concerns over board performance received higher voting support. This reflects not only investor-perceived concerns over the related E+S issue, but also a perceived need for other governance-related change.
Proposals connected to current events gain prominence from their association with the headline-making events and/or related attention. Proposals also gain prominence if related to ongoing trends and developments in the regulatory, legislative and global arenas, as well as among industry-specific peers and “leading companies,” as defined by proponents.
Prominent proposals tend to be associated with, and supported by, two types of proponents: (1) “Socially Responsible Investors” (SRI), defined as institutions which explicitly state that they seek both investment returns and social impact, and (2) public pension funds. These investors play a leading role in shaping the shareholder proposal—and by extension, the engagement—landscape. By contrast, proposals submitted by special interest groups or individuals tend to receive lower levels of support.
In addition, proposals which call for disclosure generally received higher vote totals than those that call for a particular corporate action or change in corporate policy. By contrast, some E+S issues never seem to rise to any level of prominence. The data suggests that investors are less likely to support issues where a company credibly demonstrates it has or will sufficiently address the issue, or where the general topic may be better addressed through public policy or other non-corporate remedies.
The report offers various analyses of 24 proposal topics. Those analyses include:
Total average support: During 2005-2011, average support varied greatly for each of the proposal topics, from 3% for tobacco risks to 31% for energy extraction techniques/waste. Based on a proposal topic breakdown, half of the proposal topics have an average support of 11% or above; a quarter of the proposal topics average more than 20% support.
Growth trends in average support: A number of the highest supported proposal topics also experienced high compounded annual growth rates (CAGR) in terms of annual average support, suggesting that support builds among investors as they become familiar with the specific issue. These proposal topics include: practices at financial institutions, recycling and energy efficiency, corporate political spending/lobbying, EEO/diversity, energy extraction, renewable/sustainable energy and food and consumer safety.
Average number of proposals filed/voted: The proposal topics with the greatest the number of proposals voted appear to represent subject matter that is more “universal,” i.e., applicable to all or multiple industries. More than 60% of the total number of proposals voted are represented by only a handful of proposal topics: political spending/lobbying, human/labor rights, climate change & sustainability, EEO/diversity and animal testing/animal welfare.
The research is based on a review of the roughly 1,300 shareholder-sponsored E+S proposals, which were voted across Russell 3000 companies during 2005-2011.
The Investor Responsibility Research Center Institute
is a not‐for‐profit organization established in 2006 to provide thought leadership at the intersection of corporate responsibility and the informational needs of investors. IRRCi ensures its research is available at no charge to investors, corporate officials, academics, policymakers, the media, and all interested stakeholders.