EY: Proxy Season Reveals Growing Investor Action on Climate and Diversity
The 2021 proxy season carries numerous lessons for companies, in particular indicating broadening interest by shareholders on several key ESG issues, and an increasing willingness by investors to take action on those issues through voting and engagement, according to a new report published by professional services firm EY.
According to the EY study, the most recent proxy season saw significant growth in shareholder proposals on sustainability issues including climate and diversity, equity and inclusion (DEI), as well as record levels of support for the proposals. As ESG engagement and action increasingly take center stage, many companies are responding with initiatives targeting improved oversight, accountability and transparency.
Steve Klemash, leader of EY Center for Board Matters, said:
“As social and environmental issues become more important to investors, they are driving board decisions around disclosures. In 2021, we saw unprecedented support for environmental and social shareholder proposals. Investors want to see progress happen now and companies are taking notice. Proxy statements can be an opportunity for companies to clarify how environmental and social matters are addressed and highlight new ambitions and commitments to climate and DE&I.”
The new report from EY aligns with numerous actions and statements from some of the largest global investors. Last month, investment giant BlackRock released a report highlighting its proxy stewardship and proxy voting activities over the past year, indicating a more active stance on climate risk and diversity. Similarly, in Nuveen’s recent 2021 Proxy Season Preview, the $1.2 trillion AUM investment manager predicted increased support for ESG proposals, and growing demand for transparency on accountability on sustainability-related risks.
On both the climate and DEI fronts, EY reported growth in the number of proposals submitted, and a significant jump in voting support. EY recorded 70 shareholder proposals regarding climate risk and opportunities, up from 60 last year, and 130 DEI-related proposals submitted through June, up from 90 in all of 2020. Overall, EY found that in the current season, 20% of environmental and social shareholder proposals that went to a vote received greater than 50% support, increasing sharply from 12% last year, and only 3% five years ago. For votes relating specifically to climate and DEI, majority support was secured on 41% (33% prior year), and 31% (18% prior year), respectively.
As investor interest in ESG issues continues to grow, board and management oversight of these risks is coming increasingly into focus. Accordingly, EY found that companies are more often assigning responsibility of ESG issues at the board level, with 85% of Fortune 100 companies disclosing that specific board committees have been charged with oversight for environmental sustainability or corporate social responsibility matters. Accountability has also become a key consideration, according to the report, with thirds of Fortune 100 companies having either incorporated ESG factors into executive compensation structures or planning to do so, compared to only half last year.
The report also highlights improved transparency by companies on key sustainability issues, most notable on DEI topics. According to EY, more than 90% of Fortune 100 companies used their proxies to disclose initiatives or commitments related to workforce diversity, compared to only 61% in the prior year. Climate-related transparency also improved, with 78% of proxy statements disclosing initiatives or commitments related to climate risk, and 57% including GHG emissions reduction goals, compared to 67% and 35% last year, respectively.
Klemash said:
“The social upheaval that occurred in 2020 reenergized a focus on DE&I, shown in our report. Boards are focusing on increasing diversity and are being urged to do so from their investors. On average, DE&I proposals, like addressing board diversity, received more support this year than before. Based on our findings, we expect diversity-related disclosure expectations and diversity thresholds will play a stronger part in institutional investors’ proxy voting policies moving forward.”
Click here to read the EY report.