U.S. Shareholder Proposals Jump to a New Record in 2023

Investors raised their voices at U.S. annual general meetings in the first five months of 2023, with social issues such as diversity, equity and inclusion and a new wave of anti-ESG sentiment fueling a record number of shareholder proposals, an analysis by ISS Corporate Solutions found.

We reviewed proposals submitted for Russell 3000 company AGMs held between Jan. 1 and May 31 for each year since 2019 to shed light on how investors were bringing up their concerns ahead of the May 25 peak U.S. AGM date, which topics carry the greatest currency, and their level of success.

Key Takeaways:

• The volume of shareholder proposals for annual meetings held between Jan. 1 through May 31 jumped 14% from 2020 to 2023.
• The increase can be attributed in part to the rise of anti-ESG shareholder resolutions that, albeit from a small base, have grown by more than 400% since 2020.
• Large-capitalization S&P 500 companies accounted for 90% of the shareholder proposals.
• Proposals on social issues, such as diversity, equity, and inclusion (DEI), and human rights, are growing in prevalence and now represent 35% of the total, showing consistent, year-over-year growth since 2020.
• The volume of environmental proposals in 2023 is down from a peak last year. Nonetheless, climate remains the most common subcategory of proposals.
• While the number of governance proposals is down, the topic remains relevant; board-related issues and shareholder rights are among the most common proposals and they continue to receive strong support from shareholders.
• Just 30% of the proposals submitted have reached a final vote in the period, 111 have been withdrawn so far and almost 400 are still pending.
• To date in 2023, median support for shareholder proposals stands at 25%, and just 8.3% received majority support compared with 12% for the first five months of 2022.

Total Proposals Rose, With Focus on Biggest Companies

Based on submissions since 2019, the number of proposals among Russell 3000 companies hit a record high for meetings scheduled between January and May, rising to 682^[1] from 660 for the same period last year.  The number of shareholder proposals declined in 2020, but has steadily grown since, with the total rising 14% between 2020 and 2023.

Source: ISS Corporate Solutions

S&P 500 companies received 90% of the proposals, showing that proponents tend to focus on large capitalization companies where their proposals would have greater impact not only for their reach, but also because large companies often serve as models for other businesses.

Social Issues Rise, While Anti-ESG Push Gains Momentum

Taking a closer look at the types of proposals submitted, social issues garner consistently growing interest, while environmental ones slipped 5% this year to date after rising 70% from 2021 to 2022.  Still, climate-related proposals remain the most common subcategory, at 13.3% of all proposals. Governance proposals are becoming less common, declining 29.4% since 2019.

Although the number of proposals submitted for meetings in January through May grew 12% since 2019, there is a notable difference in behavior when zooming in by type of proposal. The most striking change is the rise in anti-ESG proposals, which have quintupled since 2019. Anti-ESG proposals aim to discourage companies from implementing climate or social initiatives such as GHG emissions reductions or increasing DEI.

Source: ISS Corporate Solutions

While the number of proposals focused on environmental issues (excluding anti-ESG proposals) declined in 2023, climate remains the most common subcategory. These proposals typically aim to enhance a company’s disclosure regarding its climate change risks or to set and report GHG emissions reduction goals.  A total of 91 proposals on these climate-related topics have been submitted for meetings scheduled between Jan. 1 to May 31, 2023, representing 13.3% of the total. The number is down from its peak in 2021, but almost double the 2019 level, and continues to rest at the top of proponents’ agendas.

Source: ISS Corporate Solutions

Among Social topics, DEI tops the list. These proposals include those asking companies to report on gender or racial pay gaps, disclose the company’s DEI policy and its effectiveness, and to conduct racial or civil rights equity audits. These proposals saw a significant increase in volume in 2021 and continue to be one of the most common topics for shareholder proposals.

More Proposals, But Support Declines

Based on data as of May 16, 2023, only 206 proposals have made it to final vote, 30.2% of the total and approximately half of those voted on in the same period a year earlier. A total of 111 proposals have been withdrawn so far, and nearly 400 are still pending for the remainder of 2023. With hundreds of AGMs still to be held, more proposals will probably go to a final vote and the total may surpass the 2022 level.

Seventeen of the proposals voted on so far, or 8.3%, received majority support, down from 12% in 2022.  Only one environmental proposal (Report on Reliability of Methane Emission Disclosures) and three social proposals (two on DEI and one on human rights/labor rights) have received majority support so far this year.

The overall backing for shareholder proposals appears to be dropping as well. The median support was 25%, five points less than for the full year 2022. Support is declining across all categories except for blended Environmental & Social, and those proposals have declined in number. This category includes proposals related to climate lobbying activities and health and safety issues that have social and/or environmental implications.

Source: ISS Corporate Solutions

Support for environmental proposals peaked in 2021, leading more companies to proactively address the underlying concerns. In 2022, a record 78 of the 135 environmental proposals submitted between Jan. 1 and May 31 were withdrawn, indicating that the proponents and companies were able to reach a compromise or that the proponent was satisfied with the action the company had already taken or planned to take.

Another possible reason for the decline is that some proponents are raising the bar, submitting more demanding proposals that may be considered overly prescriptive for some investors. Environmental shareholder proposals used to focus on encouraging disclosures, but increasingly, these proposals call on companies to set and disclose targets and take specific actions.

Although anti-ESG proposals are becoming more common, they continue to receive very low levels of support with a peak of 3.4% in 2022. For the year to date, 23 anti-ESG proposals have been voted on and 31 are pending.  So far, none of them have passed.

Notes:

^[1] Based on data as of May 16, 2023.