The 2023 annual general meeting (AGM) season in the United States saw a total of 950 shareholder proposal submissions that focused on ESG topics, setting a new record high. There were 941 ESG proposal submissions in 2022 and 837 in 2021.
In contrast, it is rare for European companies to receive ESG-related shareholder proposals, with those put forward in the region usually focusing on climate change only.
During the 2023 AGM season, the number of European companies (24) that voluntarily put forward a climate transition plan to a shareholder vote exceeded the number of companies that received a climate change-related shareholder proposal. The differences between the United States and Europe are partly cultural and legal; it is relatively easier for shareholders at U.S. companies to put forward proposals.
Despite a rise in the number of ESG proposal submissions in the United States, shareholder support has declined. Only 35 (6%) ESG proposals have received majority support from shareholders this year, compared with 88 (16%) during the previous season.
The decline of shareholder support is in part owing to a higher volume of prescriptive ESG proposals, which are less likely to garner majority backing from investors. Overall, however, the rising number of ESG proposal submissions suggests that these topics are becoming a lasting and integral component of corporate governance discussions.
More than 20% of ESG proposals were withdrawn during the 2022 (27%) and 2023 (22%) AGM seasons, which may signal a growing willingness among both companies and proponents to engage in negotiation. During the 2023 AGM season, 213 proposals were withdrawn, compared with 252 in the 2022 season.
As the number of ESG shareholder proposals continues to rise, public company boards must understand their investors' specific ESG expectations in relation to the company. Examples of such topics include climate change, board structure diversity and human capital management.
The 2023 AGM season highlighted shareholder expectations in relation to certain areas, including a number of specific shifts in focus.
Anti-ESG. Notably, “anti-ESG” proposals, representing just under 10% (9.89%) of all ESG submissions during the 2023 season, have increased sharply over the percentage in the previous season (6%), highlighting the opposing perspectives within the shareholder community. It is important to note that none of the anti-ESG proposals that went to a vote have passed this season: As of June 30, 68 anti-ESG proposals went to a vote and average support was around 5%. Almost three quarters (70%) of these proposals have centered on social topics.
Reproductive rights. Reproductive rights proposal submissions rose from four in 2022 to 22 in 2023. Eleven proposals have gone to a vote with an average support of 11%, a significant decrease from the 2022 figure (25%).
The majority of such proposals are related to access for employees or customers. However, a few proposals were filed with financial institutions and technology firms on safeguarding data of users seeking reproductive care.
Companies should note that proxy advisors have not supported reproductive rights proposals in 2023, citing the possibility that greater company disclosure brings increased legal risk.
Diversity, equity and inclusion. There has been only one request for disclosure of specific workforce diversity data so far this season, compared with 14 in 2022 and 48 in 2021. This reflects the broader trend of proponents changing focus from numeric-focused data to more substantive DEI disclosures.
Human capital management. Human capital management remains a focal point for shareholders, with 15 Freedom of Association (FOA) related proposals submitted in 2023, compared with one in 2022. FOA proposals relate to a company's stance, policy or action on workers' right to organize. Ten went to a vote, but only one passed. The current labor market dynamics in the United States likely contributed to the increased focus by proponents.
Independent chair. There has been a notable 75% increase in proposals related to the topic of an independent chair, aligning with enhanced expectations from shareholders seeking a sufficient level of independent oversight that effectively assesses and manages a company's material risks, opportunities and disclosures. Many company boards are carefully evaluating their governance structures and discussing the benefits of independent board leadership.
Universal proxy card. With universal proxy card (UPC) rules now in place, board effectiveness and individual director qualifications are receiving enhanced scrutiny. The UPC has not led to an increase in contested director elections or proxy fights this season, but settlements and concessions have increased to 12 from nine last year. Ten disputes went to a vote, and three resulted in a split win, in which director seats were retained by both management and dissident candidates (a rare historical occurrence). Our data suggests that the number of campaigns launched for contested elections and proxy fights this year (38) is similar to past proxy seasons (41 in 2022). As the adoption and use of UPC matures over the next two to three years, we may see an evolution in the approach of shareholders seeking to leverage it as a tool for future annual meeting elections.
Engage Early and Often
Given the fundamental shift in investors' consideration of ESG risks and opportunities in proxy voting decisions — combined with the UPC's increased focus on individual directors — companies would be well served to understand their specific investors' ESG expectations generally, particularly those material ESG topics that are relevant to their sector and business. (Additionally, many U.S. companies operating in Europe will have exposure to new regulations emanating from the European Union, as well as to some European investors, who tend to have a more ESG-focused engagement approach.)
The high number of withdrawn proposals suggests that alternative avenues for encouraging action on ESG topics, such as negotiations, are being explored. It underscores the importance of constructive dialogue between companies and proponents to address ESG concerns effectively.
Boards are more likely to receive a favorable response from investors during the AGM season when they engage shareholders early and often.
Kilian Moote and Edward Greene are managing directors at Georgeson.