Companies should expect a record number of environmental and social shareholder proposals this proxy season, according to Nuveen's 2020 Proxy Season Preview released Tuesday.
Joining climate change as a priority this year are gender parity, workplace diversity and crisis management as companies navigate the global pandemic, the report said.
"We believe 2020 will see the awakening of a broad swath of investors highly attuned to the relationship between a company's financial performance and how effectively it manages these issues," said Amy O'Brien, global head of responsible investing at Nuveen.
Environmental and social proposals represent 66% of proposals submitted so far this year, compared to just 44% in 2016, when governance issues dominated with 56% of proposals. In 2020, governance issues account for 34% of proposals, according to March 5 data from Institutional Shareholder Services, Nuveen found.
Climate change continues to dominate environmental proposals at 77% so far this year. Nuveen found that investors are moving from a focus on climate change disclosure to tangible action including carbon reduction goals.
Social issues expected to dominate this proxy season include political spending, gender parity and workplace diversity, the report said.
One emerging trend Nuveen cited is integrating a company's environmental and social metrics into executive compensation decisions, with proposals already filed at Apple, Amazon.com and United Airlines.
Despite the growth, the overall volume of environmental and social proposals is expected to decline as companies engage with shareholders on these issues and increase disclosure. In 2019, 48% of such proposals were withdrawn by shareholders following engagement.
One area of uncertainty for environmental and social proposals comes from regulatory changes at the Securities and Exchange Commission, including proposed changes for the shareholder submission process and proxy advisory firms. While those changes do not take effect this proxy season, they "create an environment of uncertainty around important shareholder rights that will restrict shareholders' ability to meaningfully engage with company management," the report said.
In a separate report released Tuesday, Moody's Investors Service said that ESG risks were a material credit consideration in a third of its 2019 rating actions for private-sector issuers, led by governance issues.
Of roughly 2,500 rating actions citing ESG considerations, 88% mentioned governance issues, 20% referred to social, 16% cited environmental issues, and many referenced more than one.
The top concern for governance issues was financial strategy and risk management. Demographic social trends were the largest social concern, while carbon regulations topped environmental concerns.
"ESG issues are likely to be of growing importance in our assessment of credit quality, driven by factors such as stricter environmental regulations, and heightened public awareness of issues such as climate change, sustainability and diversity," Moody's Senior Vice President Swami Venkataraman said in a statement.