Corporate boards not abiding by shareholder-supported ESG proposals – U.N. study

Shareholders saw high levels of support for their ESG-related resolutions at corporate annual meetings last year, but found corporate follow-through disappointing, according to research released Wednesday by the U.N.-backed Principles for Responsible Investment.

Majority-supported shareholder proposals represent less than 10% of more than 924 ESG proposals filed in 2022 with Russell 3000 companies, according to proxy solicitation company Georgeson, but are starting to grow, and "company responsiveness to their shareholders is being put to the test," UNPRI said in statement on the research.

UNPRI analyzed 78 majority-supported shareholder proposals from the 2022 proxy season that focused on ESG issues or improving shareholder rights.

To understand what became of those proposals, it surveyed the 26 shareholder proponents that filed them and the 70 receiving companies between November and December, with a 97% response rate from the shareholder proponents and 67% response rate from the companies involved.

The investors surveyed believe that companies are only fully implementing 23% of proposals, and 14% will only be partly implemented. For 20 of the proposals analyzed, PRI found no indication from either the company or proponents that they would be implemented at all.

Among the companies responding to the survey, half said they have implemented or will be implementing the proposals passed by shareholders in part or in full, and 6% said the issues would be addressed before or during the 2023 proxy voting season.

UNPRI undertook the research because companies failing to follow through on resolutions supported by a majority of shareholders presents a problem for investors' stewardship programs, said Carly Jacobs, senior specialist for stewardship. "For investors, it should ring alarm bells and motivate them to move swiftly during the 2023 proxy season, to send a clear message that company unresponsiveness to passing shareholder resolutions is not acceptable," Ms. Jacobs said in a statement on the research.

Regardless of where investors stand on a proposal that garners majority support, how companies address them is a sign of good governance, while ignoring them "can weaken the voice of investors overall," and make investor engagement tools like proxy voting and shareholder proposals less effective, UNPRI said in a note on the research.

Emmet McNamee, head of UNPRI's Active Ownership 2.0 program, said in an interview that the survey results show that "proxy voting by itself on shareholder proposals that others have filed is not a sufficient stewardship strategy if your goal is to influence company behavior" on ESG concerns.

"Investors need to be focused on ongoing engagement and board composition, and a general preparedness to use escalation measures," Mr. McNamee said.