2021 was a crucial year for proxy voting. After years of rising profits, investor voices pushed support for environmental and social issues to new heights, moving stakeholder capitalism into the mainstream financial sector.
ESG considerations pose the biggest risks and opportunities facing investors today. Although just a few years ago it was rare for shareholders to vote against company management in corporate votes, proxy voting is now a mainstream tool in investment practice. As the volume and breadth of exposure to ESG risks continues to rise, the stage is set for another major proxy season. Last year’s trending topics will likely continue to set the agenda – with the prospect of even more substantial shareholder support in 2022.
Important themes shaping proxy voting in 2022
The dialogue on engagement is expected to reach new levels of intensity. If they perceive increased voting support, management teams and boards may be more motivated to accommodate shareholder requests to secure the resolutions’ repeal. On the other hand, when investors are more confident in a strong voting outcome, they are likely to expect a higher level of engagement from the companies they work with.
1. Shareholders expect decisive climate action on Scope 3 emissions
In the run-up to COP26, asset owners and asset managers joined ‘net zero’ investment alliances that put active ownership at the heart of investment strategies that focus on decarbonizing portfolios and the real world. As in 2021, climate issues will dominate proxy voting in 2022. However, shareholder requests will be noticeably more specific, asking companies to adopt and report on emissions reduction targets and transition plans that refer to the latest forward-looking guidance, such as the IEA’s Net Zero by 2050 roadmap and the Climate Action 100+ Net Zero Business Benchmark Indicators. There will be a strong focus on scope 3 emissions – the emissions generated across a company’s entire value chain – especially among the largest emitters.
2. Boards will be held to a higher standard in elections for directors
Investors recognize that tackling climate change requires a new way of doing business and a new approach to corporate governance. Of evidence that many boards lack ESG expertise To effectively navigate the net-zero transition, investors must take action to improve climate governance. The World Economic Forum’s Climate Governance Initiative has established principles and guidelines for corporate boards of directors on incorporating climate considerations into corporate governance and climate reporting frameworks. Asset managers are now integrating ESG considerations into their voting guidelines on director elections and compensation practices.”
Investors will be looking closely at boards of directors, corporate leadership and incentive structures as they cast their proxy votes in 2022 and beyond.
3. Linking Net Zero to Nature-Positive: Biodiversity will be a hot topic
Investor focus on nature and biodiversity has increased dramatically over the past two years, along with a growing awareness of the intersections with climate risk and human rights. The COP26 Deforestation Pledge recognizes natural solutions as the most effective climate mitigation strategy and signatories reaffirm their support for indigenous peoples and local communities. Part 2 of the COP15 UN Biodiversity Conference will take place in spring 2022, with the aim of finalizing and adopting a new global biodiversity framework. The framework will set out targets and milestones for reversing biodiversity loss, with implications for companies and their supply chains, as well as investors. The investor led Natural Capital Finance Alliance explores how capital flows can be aligned with the framework, and investor involvement is mobilized through it Finance for Biodiversity Pledge. Following the CA100+ model for channeling the influence of global investors, plans are underway for a Nature Action 100+ action framework for investors.
Global agreements and investor initiatives modeled on investor climate governance will increase support for ballot measures in 2022 on issues such as packaging and plastic waste, pesticide use, water management and deforestation, drawing more attention to sectors such as chemicals and food, beverage, and agriculture.
4. Supply chain resilience will drive votes on sustainability issues
Supply chain resilience is a growing concern among investors. In the past, investors have regularly filed shareholder resolutions asking companies to assess and disclose how they address human rights, labor practices, environmental impacts and other risks in the supply chain, and to request stronger supply chain due diligence.
Building supply chain resilience means prioritizing sustainability and transparency. Investors can increase their stewardship efforts by influencing supply chain sustainability. For example, addressing greenhouse gas emissions from major producers in the supply chain, or scope 3 emissions, extends influence to parts of the economy that investors might not otherwise be able to directly influence through traditional stewardship strategies. Investor support for proxy ballots addressing supply chain deforestation and forced labor received strong support in 2021 and supply chains will appear on proxy ballots in 2022.
5. Investors want a reset of workplace culture
The COVID-19 pandemic has changed the balance of power between companies and workers and raised investor awareness of the societal importance of worker protections such as paid sick leave and the economic value of workplace cultures that promote diversity, equity and inclusion promote. Steps to empower employees and create more supportive workplaces help companies retain valuable talent.
In 2022, as many companies commit to providing data on workforce diversity, traditional requests for gender and racial diversity breakdowns will be replaced to some extent by calls for companies to report on efforts on the field of diversity and inclusion in the workplace and to boards of directors to monitor external parties. assessments of corporate civil rights and racial equity impacts.
A shareholder’s right to submit and vote on shareholder resolutions is a central feature of shareholder democracy in the United States. With the growing influence of global investor-led initiatives and the increasing urgency for transformational climate action, we are seeing a degree of convergence in the use of the proxy process across markets. At the same time, local investors and advocacy groups are taking market-specific actions to address universal ESG issues. There has never been a more exciting time to work in the field of proxy voting.
Us ESG voting policy overlay service builds on Sustainalytics’ long-standing engagement activities and provides targeted voting recommendations to support a holistic approach to ESG stewardship. Adding this policy to our stewardship services is intended to help investors become better managers of capital; strengthening their commitment as responsible owners to deliver long-term value for their beneficiaries, companies in which they invest and the societies in which they operate.
If you would like to learn more about Sustainalytics’ ESG voting policy overlayPlease contact us [email protected]. You can also download Sustainalytics’ 2021 ESG Voting Policy Overlay Annual Report here for additional insights.
Sustainability analysis Stewardship Services enable investors to promote sustainability and demonstrate investor action as part of their fiduciary duty. Complementing Sustainalytics’ industry-leading research, we help hundreds of the world’s largest investors practice good stewardship by integrating ESG considerations into investment decisions and active ownership, all in the service of acting in the best long-term interests of our clients’ beneficiaries.