Posted in GreenBiz
April 20, 2022

‘Tis the proxy season: A peek into voting guidelines for 2022


Democracy is not a spectator sport. 

From Loyalists’ attempts in the 18th century to thwart the establishment of a United States, to the Madison Square Garden-filled “Pro American Rally” of American Nazis in 1939 to the mayhem of the 2021 attack on the United States Capitol — the test of democracy’s resilience is never quite finished. 

The U.S. system also supports the existence, and healthy exercise of, democracy in the market, and the 2022 proxy voting season has shaped up to be an especially active one for ESG issues. 

This active form of market democracy can be messy. Shareholder advocacy group As You Sow works to make sense of the mess and harness shareholder power to create lasting change in the pursuit of a clean and just economy. For market participants trying to realize sustainable change in companies, As You Sow is an industry leader in empowering investors to act on their voting privileges. Company engagement is, after all, a core tenet of ESG 2.0

As You Sow, in collaboration with Proxy Impact, released its “Proxy Voting Guidelines 2022” report last week. The two organizations provide guidelines intended to inform all investors on how to vote in an ESG-aligned manner. Those recommendations can be adapted to provide proxy voting guidelines to be used by asset owners and managers. 

Given proxy season has kicked off, I’ve outlined some key insights and takeaways from this year’s report. I highly encourage you to download and dive into the complete analysis yourself, but in case it gets lost in your downloads folder, your dog ate your documents or you’re simply short on time, I hope you find these highlights helpful. If anything, they should give you a sense of where the ESG zeitgeist is shifting. 

Management resolutions 

Management resolutions are, as the report lays out, “proposed by companies and include votes on board of director elections, auditor ratification, executive compensation, and as-needed resolutions on related governance issues such as stock options and capital structures.” Here is some of the latest guidance from As You Sow.

Board of Directors

As Competent Boards CEO Helle Bank Jørgensen recently wrote in GreenBiz, with the “growing popularity of ESG and impact investing and rising stakeholders’ expectations, boards will face even more pressure.” The board of directors is the ultimate decision-maker on corporate policy, and of chief importance therein: making decisions that align with the best interests of a company and its shareholders. 

Key voting guidelines:

  • Oppose the election of a director when: 
    • The board is not majority independent
    • The CEO serves as the board chair
    • Board members attend less than 75 percent of board meetings without a valid reason for their absence
    • There is more than a 100:1 CEO to median worker pay ratio
  • Withhold votes for:
    • Directors that have been identified by Majority Action as failing to set sufficient net-zero targets for GHG emissions reductions in alignment with Paris
Executive Compensation (Say on Pay)

You don’t need to read Thomas Piketty’s 696-page tome “Capital in the Twenty-First Century” to see that the system by which executives are paid is seriously ruptured. 

As the proxy voting report puts into context: “In 2020, CEO pay had increased by 1,322 percent since 1978, far more than the 817 percent stock market growth, and exponentially more than the 18 percent growth of a typical worker over that same time.” 

Key voting guidelines:

  • Vote against management remuneration proposals if:
    • CEO pay is greater than the 75th percentile of peers
    • CEO to median employee ratio higher than 100:1, without persuasive explanation for why such a ratio is necessary
  • Oppose resolutions if:
    • The total potential dilution from all company stock plans exceeds 10 percent of the current outstanding stock

Shareholder resolutions 

Each year, hundreds of shareholder resolutions are filed. Around half focus on governance issues such as shareholder rights, executive compensation and corporate boards. The other half focus on “E” and “S” issues under the ESG umbrella that are integral to shareholder value and for the continuity of just society and a clean economy. 

Sustainable Governance

Key voting guidelines:

  • Support resolutions that ask companies to:
    • Adopt a policy/report on plans to increase the number of women and minorities on the board
    • Report board diversity and skills in a matrix format (consistent with new Nasdaq policy)
    • Establish board committees on sustainability/climate/human rights
    • Review and report on ESG proxy voting policies
    • Adopt a policy/report on linking executive compensation to ESG metrics
Environmental Resolutions

Key voting guidelines:

  • Support resolutions that ask companies to:
    • Adopt a policy/report on net-zero GHG reduction targets
    • Report on stranded carbon asset risk
    • Limit/end fossil fuel financing/underwriting
    • Adopt a policy/report on alignment of lobbying activities with climate goals
    • Report on risks to company operations associated with climate change, such as financial risks, physical risks and public health risks
Social Resolutions

Key voting guidelines:

  • Support resolutions that ask companies to:
    • Report on direct and indirect lobbying including payments, memberships in tax-exempt organization that write legislation, and management decision-making process
    • Adopt a policy of no lobbying, campaign spending or other election-related expenditures
    • Report on gender and racial unadjusted median pay gaps
    • Commission a racial equity independent audit
    • Set goals to increase gender and racial diversity in managerial and senior levels of the company

In 2022, ESG wants you: From comments sought on the International Sustainability Standards Board’s proposals that create a comprehensive global baseline of corporate sustainability disclosures, to a call for your input on the U.S. Securities and Exchange Commission’s proposed rule on climate disclosure to — for the investor among you — a need for your voice and participation as active owners. 

There is a whole lot on your plate, and there is so much at stake. So, onward, and happy voting! 

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April 20, 2022 at 03:24PM

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