What to Expect This Proxy Season: Findings from Proxy Preview

As proxy season gears up, the new Proxy Preview report issued by As You Sow, an organization dedicated to “helping shareholders vote their values” contains a wealth of interesting information.  Shareholders advocacy is gaining force.  According to the Preview, investors this year will file approximately 400 shareholder proposals on social and environmental issues—a 50% increase  over a decade ago  While not all of these will result in votes, many of those that do not will encourage management-shareholder dialogue leading to the withdrawal of a proposal after the proponent reaches some agreement with management.

Not surprisingly, many of the resolutions filed center on corporate political spending. About 120 resolutions focus on political spending, about one-third of the total number of resolutions, and twice the number filed on the next most popular category this year: climate and energy.

"The trend on political spending has been around for several years now, and much of that has focused on political contributions to elections. But what started last year and kind of exploded this year is political lobbying disclosure," says Michael Passoff, co-author of the Proxy Preview and CEO of Proxy Impact, a progressive proxy voting service for socially responsible investors.

"In essence, what shareholders are asking for is disclosure on the political spending done on elections but also year-round," he says.

Resolutions concerning climate and energy, other environmental issues, and sustainable governance (including reporting) combined make up about equal parts of another 38% of the total. Human rights and decent work proposals make up a modest 8%, although some of these concerns are folded into the sustainability reporting requests. Proponents continue to promote board diversity and the need for board oversight of several different issues, accounting for another 6%, while employment diversity—mostly related to equal rights for lesbian, gay, bisexual, and transgender people—make up a further 6% with the remainder being a grab-bag.

Even though environmental topics are not the largest category of shareholder proposals, they remain important avenues for shareholder advocacy.  Investors filing proposals concerning environmental issues want companies to adopt policies for lowering emissions that are driving climate change and to report on how they are managing and mitigating related risks. In additional to proposals addressing climate change, environmental topics of concern to shareholders include, among others, the impact power sector companies (coal, shale gas, and nuclear) operations have on the environment, recycling and product responsibility, toxic materials, and water and forest management.

As discussed in an earlier posting, proposals addressing environmental concerns got a boost from the SEC this season when it refused to grant a no-action letter to PNC Financial Services which sought to block a proposal seeking the firm’s “assessment of the greenhouse gas emissions resulting from its lending portfolio and its exposure to climate change risk in its lending, investing, and financing activities.”  In an apparent SEC policy change, the Commission refused to concur with PNC Financial that it could exclude the proposal on the grounds that it dealt with ordinary business matters and instead found that it must be included as a proposal addressing an important social policy concern.  This ruling potentially opens a door for more resolutions seeking  climate change risk assessments throughout the financial sector.

Just who is bringing these proposals?  There are a wide range of groups responsible, ranging from big players including socially responsible investment firms Trillium Asset Management, Calvert Investments and Walden Asset Management, who together filed the most resolutions for 2013, followed by pension funds and faith-based groups. Individual proponents accounted for just 6 percent of the total filings this year.  Support for proposals also continues to increase.  The average support level has grown from 11.9% in 2003 to 18.5% in 2012. “Now you get a lot of votes that are in the 30 percent range, and some are majority votes," Passoff says. There is a trend of companies being more responsive to socially responsible investing, and mainstream investors are supporting them as well," he says.

The Preview includes far more information than can be summarized here, including an analysis of past proxy season results and outcomes.  What is clear from this year’s preview is that shareholder activism on social and environmental issues continues to grow and it will be harder and harder for companies to ignore.