Uncertainty checks investor support for ESG measures

Initial analysis of corporate proxy season reveals complex picture.

The complexity around ESG issues has been underlined by analysis of investor activity at company annual meetings, mainly in the US but also in Europe, showing support for environmental and social issues on the wane despite an increase in resolutions about them.

We reported earlier this year on the record number of shareholder resolutions on ESG issues tabled for US company annual meetings, but examination of US shareholder support for action on climate change and on human rights by data provider the Sustainable Investments Institute (SSI) shows a decline in backing for those resolutions.

SSI research on meetings to the end of May 2023 shows an average of 23% shareholders support for resolutions backing more action on climate change, down from 36.6% last year. Backing for proposals on human rights was down from around 33% to 21.6%. Just five shareholder resolutions on ESG issues have gained majority support at meetings this year so far, a fall from 35 in the last two years.

Notable exceptions

There was, however, a notable exception to the trend at three big US banks – Wells Fargo, Goldman Sachs and Bank of America, all of which saw significant minorities backing resolutions calling for the board to set out climate transition plans.

Big oil provides a particularly heated battleground, and there were increases in support for climate resolutions at the AGMs of BP and TotalEnergies, while at Shell support for a climate resolutions was at the same level as last year. But all three votes failed to secure majority support for climate resolutions. And at US companies ExxonMobil and Chevron, support fell significantly to around 10% of those voting.

Research by another data provider, Diligent, found average support for ESG measures at European companies was up to 11.6% from 10.6% last year, while average support for such proposals outside Europe and the US was 17%, up from 11.3% the year before.

Febrile environment

The differences between US and European based companies may be down to the more febrile environment in the US, where there is more organised opposition to ESG measures. Even. So, despite the fact that 79 resolutions specifically espousing anti-ESG stances were tabled – up from 45 in 2022 – those resolutions only attracted an average of 3% support.

A possible explanation for the fall in investor support for ESG measures may be the fact that some investors committed to the ESG agenda have divested shares in, for example, fossil fuel companies, leaving a large number of shares in the hands of those investors who do not prioritise ESG issues.

The pressure on companies to do the right thing from an ESG perspective is not going to go away, but challenges remain over the best way to achieve what is ‘right’. Is it, for example, best to retain investments in fossil fuel companies in order to change what they do, particularly if they are investing heavily in clean alternatives? Or is it better to divest, routing the funds made available to companies more clearly able to demonstrate their contribution to combating climate change or other ESG priorities? And the question of how to define and measure success in achieving ESG ambitions is still one that investors and regulators are grappling with.

For all the sound and fury around the issues, the cold hard investment facts indicate there is still considerable caution and uncertainty when it comes to changing the world.