ESG Initiatives Gain Momentum in 2021

As shareholders become increasingly invested in environmental, social and governance (ESG) objectives, the number of negotiated proposals is rising.

During the 2021 proxy season, over one-third (33%) of environmental proposals advocated by shareholders have been passed. Moreover, 30 environmental and social proposals have already been voted on and passed as of early July (with a month left in the 2021 proxy season). This total is the highest number to date and reflects a 50% increase from “proposals receiving majority support during the 2020 proxy season.”

The Harvard Law School Forum on Corporate Governance analyzed voting metrics of companies that are part of the Russell 3000 index for the 2021 proxy season. The data shows that shareholders are more focused on ESG initiatives and how companies incorporate them into their business models.

Director Support Levels 2020 vs. 2021 YTD

An area where the report notes a change is regarding the approval rating of directors. This year, “44 directors failed to receive at least 50% shareholder support” for election or reelection. This represents a 29% increase over a similar period in the 2020 proxy season. According to the report, “pre-disclosed voting rationales suggest that issues such as board composition (and particularly board diversity) and companies’ management and disclosures of ESG issues are increasingly influencing investors’ decisions to vote against incumbent directors.”

Shareholders have shown interest in ESG policies that don’t directly pertain to shareholder value. In this sense, they want a director who is receptive to their concerns, while also being focused on delivering solid quarterly results.

Based on data as of June 2, 2021, 66 shareholder proposals have been passed. This working total is already greater than the final number of proposals for the entirety of 2020 (56). Of the 79 proposals still pending as of June 2, 36 are government issues, 18 are social matters and 12 are environmental concerns. With one month left, there was a high likelihood of more initiatives getting approved, further capitalizing on what has been a record-breaking year for ESG.

Source: “Early Insights to 2021 Annual General Meetings Annual Corporate Governance Review,” Harvard Law School Forum on Corporate Governance, July 2021.