Withdrawals and majority votes are delivering high-quality strategies by companies, according to sustainability advocacy non-profit Ceres.
US companies have followed through on promises made to shareholders in exchange for shelving climate-related resolutions, new research has shown.
The report, published by US-based sustainability advocacy non-profit Ceres, examined the implementation of 66 out of 70 corporate climate-related commitments following resolutions filed and withdrawn during the 2021 US proxy season – representing 46% of the total number of climate-related shareholder resolutions filed that year.
“It used to be that investors engaged once at the annual general meeting (AGM) on the issues of sustainability and climate, but we increasingly see [them] treating engagement as a 12-month cycle – there’s a clearer, ongoing dialogue,” Kirsten Snow Spalding, Vice President of the Ceres Investor Network, told ESG Investor. “Withdrawals are a very important part of the story, because they’re indicative of the ongoing process of engagement between investors and companies.”
Of the corporate commitments made in response to resolutions being withdrawn, 73% have been fully or mostly implemented within the three years since 2021. Twenty-three percent were partially implemented, and only 3% did not meet investors requirements.
The vast majority (34) of the 66 corporate commitments were focused on greenhouse gas (GHG) reductions and transition plans, 13 on lobbying, 11 on plastics and packaging, seven on financing climate change and on deforestation respectively, and 12 on other climate-related topics, including methane and governance.
As an example, Ceres drew on the ongoing engagement between the New York State (NYS) Common Retirement Fund and pizza-maker Domino’s. The fund filed a proposal in late 2020, calling on the fast-food retailer to assess and mitigate its contribution to climate change.
“Domino’s management responded positively, meeting with [our] corporate engagement team and holding constructive discussions,” said Eri Yamaguchi, Senior Corporate Governance Officer and Head of Environment at the fund.
These conversations led to Domino’s committing to measuring and mitigating Scope 1-3 emissions, implementing a comprehensive climate roadmap, developing a corporate social responsibility report, and setting emissions reduction targets. Based on this progress, the NYS Common Retirement Fund withdrew its shareholder proposal.
Those findings were in line with previous research Ceres conducted on the 2014 and 2015 proxy seasons, which showed similarly positive results.
Since 2009, over a third of climate-related proposals filed at US companies have been withdrawn due to agreements being reached between the companies and their shareholders, the report mentioned.
Majority propels action
Ceres also considered how companies responded to 18 shareholder proposals that received majority votes during the 2021 proxy season.
“If a resolution goes to vote and all the other investors weigh in and secure a majority, companies aren’t then forced to implement [changes], but it is sending a very clear message most [of them] choose to listen to,” said Rob Berridge, Senior Director of Shareholder Engagement at Ceres.
The report found that 94% of 18 majority votes were implemented in some capacity – including 61% fully or mostly enforced, suggesting resolutions that stay on the ballot can result in a higher success rate for shareholders. Only one of the 18 proposals was not implemented.
Nearly 90% of the 18 majority votes recorded in 2021 were for proposals in two categories: GHG targets and transition plans (50%), and lobbying disclosure (39%).
However, Ceres noted a difference in the quality of corporate commitments made following a majority vote, versus a withdrawal. While 84% of implemented corporate commitments for requirements that didn’t go to vote were deemed ‘high’ or ‘medium-quality’ by investors, only 77% of those implemented by majority votes were considered as such.
Snow Spalding suggested this was likely related to companies’ motivations.
“When [a resolution] goes to a vote, that indicates more reticence on the company’s part,” she said. “If [it] was keen to do what investors asked, it would have agreed to make a commitment and there would have been a withdrawal. It’s not a surprise to see higher quality implementation when it’s a commitment made in exchange for withdrawal.”
Berridge also attributed the difference in quality in corporate commitments to the type of asks from investors. Four of the majority votes that were not fully implemented – two of which were filed at oil and gas firms, and two at agriculture corporates – concerned Scope 3 emissions.
“The level of difficulty in meeting such a request from investors is higher than the level of difficulty for other proposals,” Berridge argued.
Provoking engagement
In more recent years, some US companies have aimed to limit shareholders’ ability to file climate-focused resolutions – from Amazon and Comcast last year, to ExxonMobil more recently.
There has also been a downward trend in shareholder support in the country for ESG-related shareholder proposals since 2021.
In March, corporate governance and responsible investment solutions provider Institutional Shareholder Services (ISS) recorded 643 environmental and social proposals filed by shareholders of US-based companies last year – with 372 going to vote – representing a 6% increase from 2022. In parallel, a total 226 proposals were withdrawn.
However, the average level of support from shareholders declined, the ISS said – garnering 18.7%, down from 26.2% in 2022.
According to Berridge, Ceres has also seen corporate commitment rates decline in 2024 compared to 2021 levels – though not in all cases.
“For core climate goals – such as transition plans – the commitment rate has stayed high at around 40%, but this isn’t the case in other areas,” he said.
Part of the reason behind this, Berridge ventured, is that investors’ climate and environment-related proposals may have become more technical.
“Previously, investors could have asked an electric utility to loosely set a science-based emissions reduction target, but now they may be challenging those targets to ensure they really do [follow the science],” he added.
Regardless, the process of filing shareholder resolutions will continue to be a very important part of the engagement process for all shareholders – especially smaller investors.
“Larger investors have several different approaches to getting dialogues going with investee companies – they talk to them all the time and usually have long-term relationships,” said Snow Spalding. “For smaller investors, the resolution process is a way to provoke dialogue with companies, as they might not have that immediate access to management.”
