Sustainable investment firms, state pension plans, and advocacy groups are influencing businesses’ sustainability practices through a variety of shareholder engagement approaches. A key tool is the shareholder resolution – a proposal put forth by a shareholder or group of shareholders – that is included in a proxy statement and subject to a vote of the corporation’s shareholders.
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In its Proxy Preview 2017, the Sustainable Investment Institute (Si2) and its co-authors estimated that as of mid-February 2017, 430 shareholder proposals had been filed this year that address environmental and social issues – about 40 percent of the total number of proposals. Over 80 of those resolutions are related to climate change and energy, and many of them address carbon accounting and risk management disclosure. For example, in May, Exxon and Occidental Petroleum shareholders approved resolutions asking the companies to disclose climate change-related risks and report on the effects of climate change on their businesses. The rest of the 2017 shareholder proposals related to the environment covered a range of topics, such as recycling and use of antibiotics in industrial food production.
Votes on shareholder resolutions are not the only way that investors seek to change corporate sustainability behavior. Informal shareholder dialogue with corporate managers prior to filing a proposal and negotiations post-filing can influence corporate sustainability measures. The New York State Comptroller, who manages the New York State Common Retirement Fund, told the Wall Street Journal that he uses shareholder proposals as a way to garner companies’ attention, and that he will withdraw a resolution prior to a vote if the company addresses the issues raised in the resolution. He used this approach, for example, to convince Safeway to begin addressing the environmental and social consequences of palm oil. Similarly, Si2 and its co-authors reported last year that “engagements outside the proxy season arena are producing results that satisfy proponents, leaving more resolutions at companies where accords are more elusive.” They highlighted that “[k]ey wins occurred off the proxy ballot on deforestation: now more than 20 companies have pledged to take action in their global palm oil supply chains.”
ELI is interested in conducting research on shareholder engagement in part because private governance approaches, including corporate governance mechanisms, increasingly represent an important way to forward sustainability in an era of congressional inaction on key environmental problems and federal rollback of regulations.
Specifically, ELI plans to assess the value and potential for ramping up use of shareholder proposals and other forms of engagement on key issues such as reduction of corporate food waste and the environmental harms of industrial agriculture. ELI hopes to build awareness and motivate sustainable and responsible investment firms and others to consider using their shareholder status to engage in dialogues with corporations and potentially use shareholder resolutions to influence sustainability practices.
While a range of shareholder engagement approaches merit further exploration, a current and key tool – the shareholder resolution – would not be available to most shareholders under proposed federal legislation. The Financial CHOICE Act pending in Congress, which includes broad financial regulatory reforms, would allow only shareholders who own one percent of a company’s stock and who have held the stock for at least three years to file shareholder proposals. Because the current regulations allow any shareholder who owns $2,000 worth of stock for two years to file a proposal, the pending legislation would severely limit the number of shareholders who could file proposals. Other provisions in the proposed law would limit how often and when a shareholder proposal could be resubmitted after it has been voted upon in a proxy statement. The legislation also would limit representatives of shareholders, such as sustainable investment firms, from filing proposals.
The legislation was passed by the U.S. House of Representatives and is under consideration in the Senate. Ceres and other stakeholders have issued a report and are otherwise advocating against the proposed limits on shareholder resolutions. According to a Ceres staff person, the legislation “threatens a critical shareowner tool to align the interests of long term investors with the corporations they own.”
ELI’s proposed research is intended to offer support in the policy debate for the key role that shareholder resolutions can play in greening corporations, but also will examine other shareholder engagement approaches that can be used independent of the shareholder proposal process in the event that Congress places additional restrictions on shareholder resolutions.