Climate-related initiatives were front and centre during the 2022 proxy season, but shareholder support dwindled from last year amid a booming oil market and a broader backlash against environmental, social and governance (ESG) principles.
The number of environmental (including climate) proposals filed at companies listed in the S&P 500 and Russell 3000 this year surged 71% from 81 to 137 through July, according to the Conference Board, a nonprofit business research group, using data from Esgauge. But overall voting support for environmental proposals slipped to 34% from 38%.
A separate analysis of shareholder voting by US-based multinational law firm Gibson Dunn in July found climate change proposals alone jumped 57% to 130 from 83 last year. But only nine won majority approval versus 11 last year, while the average voting support fell to 33.4% from 49.9%. (The firm’s analysis was based on data compiled by proxy adviser Institutional Shareholder Services.)
The upwelling of shareholder support for environmental issues last year was highlighted by activist investor Engine No. 1 succeeding in having three new directors voted onto the board of ExxonMobil Corp for climate-related reasons.
Oil crunch overshadows climate concerns
But that remains a high point after the weakening of shareholder support this year. Mark van Baal, founder of Dutch environmental advocacy group Follow This, recently even described 2022 as a “lost year” fighting climate change as the major oil companies can claim greater shareholder support in the proxy wars.
Indeed, it’s hard to ignore the impact record profits this year at oil giants such as BP, Exxon, Shell and Chevron may have had in softening investor sentiment on climate demands. “These proposals are about the long-term horizon but proxy voting is affected by current realities,” says Heidi Welsh, executive director of the non-profit Sustainable Investments Institute in Washington DC, which tracks ESG-related proposals and voting.
The oil supply shock following Russia’s invasion of Ukraine has put the focus back on fossil fuel production. “Potential natural gas shortages in Europe and possibly higher oil prices have shifted priorities to securing supply – while weaning the EU off Russian hydrocarbons – from addressing climate change,” wrote S&P Global energy analyst Simon Redmond in a mid-year report.
BlackRock backs away from ‘prescriptive’ proposals
At the same time, asset management giants like BlackRock and Vanguard rejected climate proposals they deemed overly prescriptive. BlackRock, for example, reported voting in favour of 27% of environmental and social resolutions in 2022, down from 43% last year, “as many climate-related shareholder proposals sought to dictate the pace of companies’ energy transition plans despite continued consumer demand.”
That put the firm at odds with activists like Follow This, which introduced several proposals calling for oil companies to reduce emissions in line with the goal of the Paris agreement to limit global warming to 1.5 degrees Celsius above preindustrial levels.
At Shell, for example, that initiative drew support from 20% of shareholders, down from 30% last year, while winning just 15% at BP, down from 21% in 2021. Until this year, support had been increasing for the measure at both companies since Follow This first filed it in 2016.
Proposals setting more stringent targets on greenhouse gas emissions, or net-zero targets –requesting companies adopt policies aligning with the International Energy Agency’s Net-Zero Emissions by 2050 scenario – are naturally going to be a harder sell than ones asking companies only for reporting or disclosure, according to proxy experts.
“Disclosure resolutions are getting the same level of support,” says Andrew Behar, CEO of environmental and social advocacy non-profit As You Sow. “But it’s the newer resolutions that are a little more granular which are challenging the status quo.”
In the former category, As You Sow won majority support this year for a novel proposal asking insurance giant Chubb to report on how it plans to measure, disclose and reduce the greenhouse gas emissions associated with its underwriting activities. The aim is to make the insurance industry more accountable for the role it plays in financing fossil fuel projects.
But Behar says he expects shareholder resolutions to increasingly focus on direct action following the adoption of a proposed US SEC rule that would require companies to provide detailed reporting on their climate-related risks, emissions and net-zero transition plans.
Large companies would have to disclose that information starting in fiscal year 2023 under the new rule.
Battling the ESG backlash
Even more than stricter demands, others attribute softer support for climate proposals to push back against ESG investing more broadly. Conservative-leaning investors such as Peter Thiel, prominent business figures like Elon Musk and the Republican party in the US have lately taken aim at ESG as irresponsible “woke capitalism”.
“I would not underestimate the impact that the anti-ESG backlash is having on some investors,” says Tom Powdrill, head of stewardship at London-based proxy adviser Pensions & Investment Research Consultants. “There’s significant political and corporate pressure being exerted in some cases.”
Despite its pullback on climate proposals this year, BlackRock has come under attack by conservative groups and politicians as a leading proponent of ESG investing. According to an Axios report, Republicans plan to haul in the CEOs of investment firms such as BlackRock before Congressional committees if they retake power in January.
For his part, Van Baal has no plans to change strategy in the wake of the ESG backlash or soaring oil industry profits. That means continuing to push for reductions in emissions aligned with the Paris accord and building on the minority of shareholders its proposals have attracted.
“Together with these investors, we must convince a majority of investors that big oil will not change unless they use the power they have, the power of the vote,” he says.