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Investors are Making 2021 The Year of The ESG Proxy

This year’s proxy season will be more important than ever for shareholders to cast their votes regarding climate and other ESG issues. With the pandemic having awakened the world to urgent environmental, social, and governance concerns, surveys and reports point to increased investor activism in this area. 

“Building on trends seen in prior years, the increased attention to ESG from shareholders, stakeholders, and regulators sets up 2021 as a year of record support for shareholder proposals, potentially increasing votes against boards that are not keeping pace with ESG transparency and accountability,” noted global asset manager Nuveen in a recent statement announcing its 2021 Proxy Season Preview. “Nuveen anticipates more willingness from mainstream investors to use their votes to convey a stance on central ESG issues such as climate change and diversity and inclusion.”

Nuveen, which manages $1.2 trillion in assets for institutional and individual investors, expects increased attention in four main areas. Climate-related proposals will go “beyond general requests for additional transparency,” stated Nuveen’s 2021 Proxy Season Preview, which compiled data from ISS Shareholder Proposals and Ceres Resolution Tracker. Investors now expect to see real accountability and results of companies’ low-carbon transition efforts. 

A new analysis by sustainability nonprofit Ceres found that 136 climate-related shareholder resolutions were filed so far this year. 

“A number of the agreements focus on plans to set corporate science-based targets for reducing greenhouse gas (GHG) emissions, such as those reached at Domino’s Pizza, Citigroup, JP Morgan Chase, Cleveland Cliffs, Albemarle Corp., Pentair, Realty Income Corp., and others,” noted Ceres in a recent press release. “Other agreements ask for disclosures on how corporate climate lobbying aligns with the goals of the Paris Agreement, such as those reached following proposals withdrawn at CSX, Duke Energy, Entergy, First Energy Corp, and Valero coordinated with the Interfaith Center on Corporate Responsibility.”

The second area of proxy voting will include diversity and inclusion in the workforce and on boards that go beyond gender. While fewer shareholder proposals on board diversity make it to a vote, investors are expected to express more strongly their views by voting against boards that are not diverse, stated Nuveen’s report.

“Whereas less than 10 percent of boards in the Russell 3000 – and none in the S&P 500 – lack gender diversity, nearly 40 percent of Russell 3000 boards lack racial and/or ethnic diversity,” the investment manager noted. “Many mainstream investors have now put companies on notice regarding diversifying their boards beyond gender.”

Regarding diversity in the workforce, Nuveen’s report sees a dramatic increase in shareholder proposals requesting transparency and disclosure of EEO-1 (Employment Information) reports. There could be as many as 40 filings of shareholder resolutions requesting such disclosure in 2021: “Diversity and inclusion is now the most common human capital management issue addressed in proxy statements.”

The third area of focus in Nuveen’s report is in holding corporations accountable for their response and management of the coronavirus. Such proposals are not often addressed in the proxy voting process and include paid sick leave, employee health, and safety policies, as well as employees’ board representation.

Finally, shareholders aim for greater oversight of a company’s political activities and executive compensation. “Shareholder proposals on political activities have been the most-voted proposals of the past two years,” said the report. “Furthermore, recent political unrest may add a new perspective for how shareholders analyze and vote on these proposals.”

Shareholders are also requesting more transparency regarding executive pay, and the compensation to be more directly linked to the achievement of the company’s ESG strategies and goals.

“Proxy voting is shareholders’ primary means of communicating views to companies and demonstrating conviction on how an investors’ values align with corporate practices. This year’s proxy season is representative of the key issues that dominated social media engagement and news headlines in 2020 and through the start of this year,” said Peter Reali, Nuveen’s head of engagement. “Companies who are able to demonstrate that they are making long-term, positive changes related to climate change, diversity, and employee health benefits will prove their long-term sustainability to investors.”

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