Proxy season 2017: analysing the trends
With the 2017 proxy season now complete, it is time to take stock of the outcomes, analyse the voting trends and learn lessons for next year. The 2017 proxy season saw a record number of shareholder resolutions related to environmental, social and corporate governance issues uploaded to the PRI’s Collaboration Platform. These covered a huge range of topics, from reducing pesticide use to gender pay equality, and from board diversity to managing food waste.
This proxy season we also launched a vote declaration system, a platform designed to give investors the opportunity to declare how they intend to vote on a range of shareholder resolutions, with the aim of increasing transparency around proxy voting activities.
Insights from the Collaboration Platform
This proxy season, an unprecedented 241 shareholder resolutions were filed or co-filed by PRI signatories and uploaded onto the PRI’s Collaboration Platform, representing an increase of 180% on 2016. Shareholders voted on 146 of these resolutions, while the remainder were either withdrawn by the lead filers or omitted by the US Securities and Exchange Commission (SEC). 37% of resolutions posted onto the Collaboration Platform related to governance issues, 33% to environmental issues, and 14% to social issues. The remainder cut across multiple issues.
The average voting outcome was 33.3%, with 20 resolutions receiving a majority of votes. A breakdown of outcomes by ESG theme highlights that investors find governance-related shareholder resolutions more material, with the average voting result for governance resolutions being 41.3%. The average voting outcome for environmental-related resolutions was 33%, while resolutions on social issues received an average of just 18.4%.
Of the 241 resolutions uploaded onto the Collaboration Platform, 71 were withdrawn, a withdrawal rate of 29%. Looking at the rate of withdrawal across environmental, social and governance issues finds that social issues had the highest rate of withdrawal at 50%, while environmental- and governance-related resolutions had withdrawal rates of 29% and 18% respectively.
key themes of 2017
Investors are increasingly beginning to recognise the risks that climate change will pose to their investments and in recent years investors have begun to file climate change-related shareholder resolutions. Despite this, the resolutions have been historically unsuccessful, particularly in the US.
However, 2017 marked a turning point. A total of 63 climate-related resolutions were uploaded to the Collaboration Platform. These can be broadly split into two categories: resolutions calling for the adoption of emissions reduction targets and resolutions calling on energy and utilities companies to assess and disclose the risks associated with a low-carbon transition that is consistent with the Paris Agreement’s 2 degrees Celsius warming target. 38 of the 63 climate-related resolutions uploaded to the Collaboration Platform were voted on at company AGMs and received an average vote outcome of 33%.
Particular progress was made on the "2-degree scenario" resolutions, with 16 resolutions receiving an average vote outcome of 45%, compared to 33% in 2016. This marks a change in sentiment amongst investors, who are recognising the risks associated with climate change and are increasingly willing to use their voting rights to make their voices heard on the issue. This is epitomised by the landmark results at ExxonMobil, Occidental and PPL Corporation, where a majority of investors supported "2-degree scenario" resolutions, voting against management recommendations. The "2-degree scenario" resolution at Occidental received 67% of votes in favour, the first time a resolution of this type has passed at a US oil and gas company. This result was also significant as BlackRock, Occidental’s largest shareholder with 7.8% of its shares, voted in favour of the resolution noting that despite ongoing engagement with the company there was a "lack of observed change in reporting practices". This was followed by a similar resolution at PPL Corporation which received 57% of votes in favour.
Perhaps the most significant outcome of this proxy season was the success of the "2-degree scenario" resolution at ExxonMobil, the world’s largest listed oil and gas company, which received 62% of votes. The resolution, filed by the New York State pension fund and the Church Commissioners of England called for the company to publish an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies that are aligned with the Paris Agreement’s 2 degrees Celsius warming targets. Over 90 investors with more than US$10tr in combined assets under management declared their support for this resolution before the AGM. In addition, proxy advisory firms ISS and Glass Lewis recommended voting in support of this proposal for the second year running.
Some suggest that the threat of the US withdrawing from the Paris Agreement, as well as the launch of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), has led investors to take a more active role in the management of climate change risks. Indeed, BlackRock highlights that aligning with the TCFD recommendations is one of its five engagement priorities, noting that its voting decision at Occidental was "meant to encourage the company to undertake enhanced reporting on climate-related risks and opportunities, in line with the TCFD recommendations".
Proxy access and shareholder rights
Another key theme of the 2017 proxy season was the continued pursuit of shareholder rights and proxy access at US companies, with New York City Comptroller’s Boardroom Accountability Project entering its third year. 19 resolutions related to shareholder rights were uploaded to the Collaboration Platform, with 16 of these calling for companies to adopt a proxy access by-law. On average, they received 69% of votes in favour, with all but two receiving a majority of votes in support. While the results of these resolutions highlight that proxy access still remains a key priority for investors, the filing of proxy access resolutions is likely to become a less prominent feature during proxy season, now that more than 60% of companies in the S&P 500 have adopted proxy access by-laws. However, the spotlight on shareholder rights in the US is likely to increase in the future given the proposed amendments to the threshold for filing shareholder proposals which have been introduced in the Financial CHOICE Act.
A key social issue that was of concern to investors during this year’s proxy season was workplace diversity, with 32 resolutions on board diversity, racial and gender diversity and pay equality being filed or co-filed by PRI signatories and uploaded onto the Collaboration Platform. However, 22 were withdrawn and one was omitted by the SEC. Resolutions that were voted upon received an average outcome of 16%.
Despite the low voting results of diversity-related resolutions, the high withdrawal rate suggests that companies are beginning to recognise and improve their performance on workplace diversity. These resolutions were all successfully withdrawn by their proponents after the companies agreed to either adopt or update their various diversity policies, suggesting that progress on the issue is being made. Indeed, it may be that companies are beginning to understand the financial benefits of diversity after a McKinsey report noted that companies with more diverse workforces perform better financially.
Sustainability reporting and company disclosure of lobbying and political activities were the other key themes of the 2017 proxy season. 17 resolutions uploaded to the Collaboration Platform related to sustainability reporting; 11 of these were voted on, with an average voting outcome of 30%. 27 resolutions related to disclosure of lobbying and political activities were uploaded to the platform; 21 were voted on, receiving a 27% average voting result.
Signatories wishing to promote resolutions and invite co-filers, either for upcoming resolutions or during next year's proxy season, can do so through the PRI's Collaboration Platform .