ESG-Related Shareholder Proposals – Takeaways from the First Half of 2022

July.25.2022

ESG-related shareholder proposals featured prominently in the most recent proxy season, with nearly 40% of large-cap public companies facing a shareholder vote on ESG topics in the last six months. We reviewed ESG-related proposals submitted to companies in the Fortune 250 over the first half of 2022 to identify new developments and trends in this area and to anticipate future proposals.

While the proxy season is over for many companies and many other companies are beyond the advance notice period for shareholder proposals, companies should expect to receive shareholder ESG-related proposals, especially concerning climate change, human rights, and diversity. However, companies can prepare and potentially avoid such proposals by increasing their ESG disclosures in proxy statements or reports. The most common type of shareholder proposal identified in our review called for companies to prepare a report on a key ESG topic, most often climate change. By making relevant ESG information publicly available, companies may be able to avoid receiving future shareholder proposals calling for votes that could force increased and unplanned transparency.

Interestingly, there were relatively fewer proposals that called for companies to take prescriptive measures on ESG, such as setting specific greenhouse gas emissions reduction targets. Prescriptive shareholder proposals also received significantly lower levels of support across most types of ESG topics, with the exception of civil rights or racial equity audits. While it is difficult to pinpoint the reasons for this trend, public companies have been increasing transparency into their human capital management consistent with changes in SEC rules. Accordingly, we believe proactively building internal programs to address diversity and disclosing relevant diversity data may help preempt prescriptive shareholder proposals that specifically target diversity-related issues.

Approved ESG-Related Shareholder Resolutions

Across the Fortune 250, we identified 221 ESG-related shareholder proposals received by 98 companies during the first half of 2022. Of the 221 ESG-related shareholder proposals, 21 received a passing vote. Additionally, 17 of the 21 ESG-related shareholder proposals that received a passing vote were recommended against by the board.

Details regarding the 21 passed ESG-related shareholder proposals are included in the table below:

Company	Proposal	Board Recommendation	Votes For
Altria Group, Inc.	Civil Rights Equity Audit	Against	62.16%
Apple Inc.	Report on Civil Rights Audit	Against	53.55%
Apple Inc.	Report on Company Risks through Use of Concealment Clauses	Against	50.04%
Caterpillar Inc.	Report on Climate Policy	For	95.50%
Chevron Corp	Report on Reliability of Methane Emission Disclosures	For	98.00%
Chubb Limited	Report on Greenhouse Gas Emissions	Against	72.18%
Costco Wholesale Corp	Adopt GHG Emissions Reduction Targets	Against	69.95%
Dollar General Corp	Report on Political Spending	Against	56.99%
Dominion Energy, Inc.	Report on Risk and Impacts of Natural Gas Use	No Recommendation	80.13%
Exxon Mobil Corp	Financial Statement Assumptions & Climate Change	Against	51.00%
International Business Machines Corp	Public Report on the Use of Concealment Clauses	Against	64.70%
Johnson & Johnson	Third-Party Racial Justice Audit	Against	62.64%
Lowe’s Companies, Inc.	Report on Racial & Gender Pay Gaps	Against	58.01%
McDonald’s Corp	Third Party Audit of Stakeholder Civil Rights	Against	55.14%
The Boeing Co	Report on Net Zero Indicator	For	89.09%
The Home Depot, Inc.	Racial Equity Audit	Against	62.77%
The Home Depot, Inc.	Report on Deforestation	Against	64.66%
The Travelers Companies, Inc.	Report on Lobbying	Against	62.34%
The Travelers Companies, Inc.	Report on Measuring Underwriting of GHG Emissions	Against	55.24%
The Walt Disney Co	Report on Pay Equity	Against	59.12%
Waste Management, Inc.	Civil Rights Audit	Against	54.46%

Number, Source, and Type of Proposals

There was a significantly larger number of ESG-related shareholder proposals submitted in the first half of 2022 relative to all of 2021 across the Fortune 250. A total of 221 resolutions were proposed in the first half of 2022, compared to 128 for all of 2021.

ESG-focused investing funds and shareholder advocacy groups drove the significant increase, with these organizations, including the shareholder advocacy group As You Sow and the impact investor Arjuna Capital, accounting for 51% of ESG-related shareholder proposals submitted in the first half of 2022 to the Fortune 250, compared to just 33% for all of 2021.

As You Sow submitted 810 ESG-related shareholder proposals across hundreds of public companies,^[1] including eight successful climate-related resolutions at ExxonMobil, Phillips, Caterpillar, Boeing, Chubb, Travelers, and Dollar Tree. An additional 93 resolutions were withdrawn after As You Sow reached an agreement with the respective company. As You Sow accounted for just over 7% of all shareholder proposals in the first half of 2022 across the Fortune 250.
Additionally, part of the increase was due to increased shareholder activism from the National Legal and Policy Center and the National Center for Public Policy Research. Together, these entities submitted over 12% of all ESG-related proposals in the first half of 2022 across the Fortune 250, compared to no submissions in 2021.

The top five types of ESG-related proposals covered climate change, human rights, lobbying, civil rights, and general environmental topics.

Emerging Investor Consensus and Declining Support

While the total number of ESG-related proposals and the total number of approved ESG-related resolutions has increased significantly from 2021 to 2022, the overall level of support for ESG-related proposals decreased. The pass rate in the first half of 2022 was 9.5%, significantly less than the 17% pass rate for ESG-related proposals for all of 2021.

This is in part due to some of the major asset managers cooling off their support for prescriptive climate- and environmental-related proposals. For instance, in May 2022 BlackRock issued an update on their approach to climate-related shareholder proposals, stating that “many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value.”^[3]

Additionally, we identified an emerging investor consensus in the types of climate-related proposals that received a passing vote. There are three major types of climate-related proposals:

Requests for increased climate-related reporting,
Requests for GHG emissions reduction targets, and
Requests for companies in the financial sector to set policies ending or restricting their investment in fossil fuels.

Proposals calling for increased climate-related reporting had the most success, with a passing rate of 28.57% in the first half of 2022, while other proposals did not fare as well as detailed in the table below.

Type of Proposal	Number of Proposals	Pass Rate to Date (%)
Climate Reporting	21	28.57%
Emissions Targets	8	12.50%
Investment Policies	8	0.00%

The higher passage rate for climate-related reporting proposals may indicate that investors value receiving additional climate-related information and are less interested in holding companies to specific targets or climate-related goals. As such, companies may be able to avoid receiving shareholder proposals related to climate and other ESG topics and improve investor relations by proactively building programs and preparing disclosures that meet current market standards for transparency and insight into ESG initiatives.

^[1]https://www.asyousow.org/resolutions-tracker

^[2]Including proposals specifically targeting social media companies related to data privacy, the spread of misinformation on social media platforms, and board and committee oversight of privacy and information efforts.

^[3]BlackRock “2022 climate-related shareholder proposals more prescriptive than 2021” May 2022. Web.
Link: https://www.blackrock.com/corporate/literature/publication/commentary-bis-approach-shareholder-proposals.pdf

Authors

J. T. Ho Partner, Corporate Governance, Capital Markets

San Francisco

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D:+1 415 773 5624
E: [email protected]

Practice:

Corporate Governance
Capital Markets
Compensation & Benefits
Environmental, Social & Corporate Governance (ESG)

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J. T. Ho Partner

San Francisco

J.T. counsels companies on Board and committee oversight, assessment and composition issues, developing effective shareholder engagement programs and governance-related disclosures, and helps companies to understand and consider the views of proxy advisors and institutional shareholders and other long-term stakeholders in their decision making. Recently, he has helped many companies successfully address ESG related shareholder proposals and activism campaigns and refine their disclosure controls and procedures and enterprise risk management programs to address cybersecurity and climate risk.

On the securities front, he focuses on advising clients in connection with securities offerings, proxy statements, periodic SEC reports, stock exchange listing obligations, stock repurchases and the sale and reporting of securities by insiders. He regularly counsels companies on difficult disclosure issues and provides training on disclosure best practices.

J.T. also advises on compensation committee matters and related disclosures as well as the design of cash and equity incentive plans, and has helped over a dozen companies remediate failed or low "say on pay" votes.

J.T. plays a leading role in Orrick’s ESG practice, helping companies identify and understand the risks and opportunities associated with ESG and incorporating ESG into a company’s overall business strategy and incentive plans. More recently, he has helped companies navigate the growing anti-ESG movement.

J.T. serves on the advisory board of The Corporate Counsel and hosts J.T.'s Fast Five, a monthly podcast on The Corporate Counsel where J.T. covers the five things public companies ought know each month. J.T. Ho also regularly presents on and contributes articles related to corporate governance, securities, executive compensation and ESG. He has presented at notable conferences sponsored by The Corporate Counsel, the Securities Regulation Institute, The Rock Center for Corporate Governance, the Society for Corporate Governance, the ABA, the Practical Law Institute, Compensation Standards, Practical ESG and NASPP. He is recognized as a Next Generation Partner by Legal 500, as one of the Ones to Watch® Best Lawyers in America, and was named a Rising Star by Super Lawyers in 2018, 2019, 2020, 2021 and 2022.

Carolyn Frantz Senior Counsel

Seattle

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Practice:

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Carolyn Frantz Senior Counsel

Seattle

A former Rhodes Scholar, Carolyn clerked for Supreme Court Justice Sandra Day O’Connor and D.C. Circuit Court of Appeals Judge David S. Tatel, before teaching at the University of Chicago Law School. She was a litigation partner at a major law firm for eight years before joining Microsoft, where she managed the company’s worldwide tax litigation until her appointment as Corporate Secretary.

As Microsoft’s Corporate Secretary, Carolyn had the opportunity to work closely with the company’s Board of Directors and senior leadership, gaining a first-hand understanding of the opportunities and challenges facing technology companies in a dynamic competitive and regulatory environment. As the head of the Corporate Legal Group, Carolyn was responsible for legal issues regarding securities law and disclosures, treasury and finance, international trade, procurement, real estate, and many other issues. Building on her extensive litigation experience, which includes managing tax disputes domestically and abroad, as well as litigating multidistrict products liability, consumer cases, and commercial contract disputes, Carolyn understands the practical challenges companies face and how those intersect with Board reporting, securities disclosures, and internal accountability. She also brings her understanding of board governance, corporate law, and ESG to select litigation matters.

Carolyn is also frequently called on to serve as a resource to new legal leaders in their roles supporting and interacting with their Boards.

Hayden Goudy Director of Environmental Social and Governance and Corporate Governance

Seattle

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D:+1 206 839 4356
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Hayden Goudy Director of Environmental Social and Governance and Corporate Governance

Seattle

As the Director of ESG and Corporate Governance at Orrick, Hayden provides non-legal strategic advice to clients on building the right ESG policies and getting to the bottom of their most pressing ESG issues. His area of focus includes the identification and assessment of priority ESG key performance indicators, giving investors, corporates, and other stakeholder insight and clarity into the alphabet soup of ESG. Driven by finding simple solutions to complex research and data problems, Hayden brings a key skill set to the ESG team’s services.

Prior to Orrick, Hayden worked in the Business Intelligence and Investigations practice with Kroll, a global leader in governance, risk and transparency. He was based in their London office, where he founded a taskforce to help clients address ESG issues, including in emerging and frontier markets. He has experience across sectors, including financial institutions, technology, manufacturing, and oil and gas. He has managed teams providing flexible analytical support towards ESG issues, including pre-transaction investigative ESG due diligence and human rights investigations. He has also provided business intelligence research for market entry; counseling on reputational risk, including integrity due diligence and social media assessments; guidance on regulatory and compliance risks; and intelligence and analytical support in litigation and disputes.