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| 4 minutes read

Support for sustainability-related requisitioned resolutions may be dropping, but ESG-related activism is unlikely to go away

According to a recent report by ShareAction, the voting success of shareholder resolutions driven by ESG concerns dropped significantly from 2021 to 2023, notwithstanding that the number of sustainability-related resolutions put forward by activists, particularly in the US, remains high. 

Climate-related shareholder activism targeted against corporates and financial institutions often takes the form of requisitioned resolutions relating to climate initiatives, as well as votes against key company resolutions or director appointments by shareholders. It can, of course, also take other forms, including disruption at AGMs, company engagement behind the scenes, wielding of investor influence and, perhaps most dramatically, litigation. 

In the 2022 proxy season in the US, shareholders filed 529 resolutions relating to ESG issues at annual meetings of publicly-traded US companies, representing an increase of around 20% from 2021. This number increased again to 550 in 2023. However, ShareAction’s recent report (published in January 2024), which looked at how 69 of the world’s largest asset managers have voted over the past few years on ESG-related resolutions, found that the success of ESG-related resolutions has decreased dramatically, despite the number of resolutions filed remaining high. Only 3% of the resolutions studied in the report were passed in 2023, compared to 21% being passed in 2021. The largest drop in support was for environmental and climate-related resolutions (in 2023 only 3% of assessed environmental resolutions were passed, compared to 32% in 2021). At the same time, nearly a third of the 256 climate-related shareholder proposals tracked by advocacy organisation Ceres were withdrawn, following agreement being reached successfully before a vote.

Asset managers have argued that the fall in their support of these resolutions reflects how they see shareholders’ demands, including around disclosure, becoming more agenda-driven and at risk of hurting shareholder value, as well as being overly prescriptive. 

Exxon Mobil (“Exxon”) and Chevron serve as interesting examples of this trend. Despite activist hedge fund Engine No. 1 managing to appoint three of its chosen directors to Exxon’s board in 2021, and Chevron’s shareholders voting to cut the company’s Scope 3 greenhouse gas emissions in the same year, all climate-related shareholder proposals at Exxon and Chevron’s most recent AGMs were defeated. Exxon has also since tried to sue some of its activist shareholders in response to the filing of climate-related resolutions, alleging breach of SEC rules. Such actions might cause activists to hesitate, but have simultaneously drawn criticism from institutional investors, such as CalPERS.

Sustainability-related resolutions remain more popular in Europe and the UK

The picture is not consistent globally, however, as European asset managers appear to be more likely to vote in favour of resolutions which seek to protect employee rights, human rights, and the environment. On average, European asset managers supported 88% of ESG shareholder proposals in 2023, compared to the 25% of US asset managers. The UK sits somewhere in the middle, hovering around 64% on average, according to ShareAction. 

This split may, in part, be explained by the fact that European and UK financial institutions are increasingly expected to disclose the ESG impacts of their investments (for example, under the EU Shareholder Rights Directive). On the other side of the pond, the politicisation of ESG has found some traction with at least 165 bills against ESG investment criteria introduced in 37 US states between January and June of 2023 (with varying degrees of success).

Say-on-climate resolutions put forward by FTSE 100 companies continue to succeed

A comparison of the number of ‘say-on-climate’ advisory resolutions filed with FTSE 100 companies also shows a relatively significant drop in numbers - from 14 in 2022 to 8 in 2023 - but not the support they achieved. Partly in response to shareholder requisitions and engagement with environment and climate activist groups, most ‘say-on-climate’ resolutions are now being proposed by the board – as opposed to being requisitioned directly by activists, and have, on average, gained over 90% of votes in support. Of the 5 ‘say-on-climate’ votes put forward by FTSE 100 companies so far in 2024, all have passed. 

Nature-related resolutions are on the rise

In March 2024, nature-related shareholder resolutions grew from one to 19 in North America (according to Ceres) and are expected to gain strong investor support. Seven asked companies to disclose in line with the Taskforce for Nature-related Financial Disclosures (TNFD) framework launched last September; five focused on deforestation; one focused on regenerative agriculture; and another focused on pesticide usage. Four have been withdrawn following a commitment on behalf of the relevant companies to make more disclosures ahead of the AGM. 

The steps boards can take

Even if only a small number of shareholder requisitioned resolutions are passed by way of a vote at company AGMs, the volume of requests remains relatively high.  Notwithstanding the limited success of these ESG-requisitioned resolutions, activists are using them to drive engagement with senior management on climate and nature issues. 

In responding to the ever-present pressure from activists, boards may want to consider the potential risks associated with using strong defensive tactics against activists, as well as the value of early and ongoing engagement to respond in a collaborative way to their demands. ‘Say-on-climate’ resolutions put forward by boards have been proven to outperform resolutions tabled by activist shareholders, and a number of companies have had success in agreeing withdrawal of a resolution through constructive engagement with activists ahead of their AGMs. 

A key component in all of this will be ensuring that boards remain upskilled on climate and biodiversity issues as part of the wider piece on sustainability; that they are plugged into effective investor relations teams; and that the governance processes to ensure effective internal reporting and review remain fit for purpose as sustainability-related demands (and legislation) evolve. 



shareholder activism