5 Key ESG Proxy Season Takeaways

By Eve Tahmincioglu
July 24, 2019

EY report finds gender diversity and sustainability key issues for 2019

Environmental, social and governance issues were at the heart of proxy votes and proxy statements this year; yet more evidence that boards need to be focused on ESG oversight.

Gender diversity and sustainability were among the main governance issues, according to the recently released EY Center for Board Matters’ 2019 Proxy Season Review report.

“How a company is protecting the environment, delivering value to society, investing in its people, embracing diversity and creating an inclusive and innovative culture – these factors drive long-term value, and we’re seeing these themes reflected in the 2019 proxy season,” says Jamie Smith, the Center’s associate director.

“Investors, she continues, “are further integrating environmental, social and governance considerations in their stewardship programs and broader approach. That includes some asset managers offering new ESG products and solutions and doing more to embed ESG into their investment process, and some asset owners asking more questions around how their current and potential external managers are approaching ESG matters.”

The Center identified five key takeaways for boards as they reflect on this past proxy season and evolving governance developments:

1.         Gender diversity accelerates

a.         The rate of increase in women-held directorships has doubled, increasing 2% in both 2018 and 2019 to reach 23%, compared to only a 1% rise each year since 2013.

b.         All male boards are nearly extinct – among S&P 500 companies, all-male boards have nearly disappeared to fewer than 1%, and across the S&P 1500 just 5% remain all-male

c.         Votes against all-male boards continue to climb – votes against nominating/governance chairs at all male S&P 1500 boards have tripled since 2016, with those chairs receiving an average opposition vote of 24% this year

2.         Diversity disclosures on the rise

a.         45% of the Fortune 100 explicitly disclosed the board’s racial/ethnic diversity, up from 23% three years ago

b.         75% of the Fortune 100 now use a skill matrix to highlight diversity of relevant director qualifications, up from 30% in 2016

3.         Companies voluntarily enhance communication around corporate sustainability and citizenship

a.         Since 2016, the number of Fortune 100 companies using the proxy to highlight their commitment to corporate sustainability and citizenship has more than doubled

4.         Investor engagement involving directors now standard practice for leading companies

a.         More than half of Fortune 100 companies said board members were involved in select engagement discussions, up from 29% in 2016.

5.         Shareholder proposal landscape continues to evolve, with potential regulatory changes on the horizon

a.         Environmental and social topics represent half of all proposals submitted to date; support for these proposals continues to climb, averaging 28% so far this year, up slightly from 27% last year and 22% in 2013.

“The need for companies to redefine value through a broader lens is becoming more acute in today’s business environment,” explains Smith. “Companies are enhancing communication around corporate sustainability and citizenship, including highlighting key messages and progress around environmental initiatives, social impact, and diversity in the boardroom as well as across the workforce.

She advises that “as the ES of ESG grows in prominence, it is increasingly important for boards to assess their oversight of this space” and consider the following questions:

  • How is the board overseeing company-relevant environmental and social risk and value drivers? Are those considerations integrated into long-term strategy?
  • Does the board’s composition and culture set the right tone at the top?
  • How is the company telling its unique story around environmental sustainability and social good?

“Boards should be challenging themselves in this area – ideally before an investor does so,” she cautions.