Voting season 2019: environmental and social proposals increasingly important for shareholders

Environment – climate and plastic are important to shareholders

As far as the issue of climate is concerned, where 60 resolutions were proposed until the middle of July in the USA, investors demand a stronger focus on a more concrete assessment and consideration of risks caused by climate change and engagement with the economic and social risks caused by it. “The Californian energy utility company PG&E Corp. had to file for bankruptcy earlier this year due to the extensive damage caused by forest fires last year,” as Schock points out. Future company research could therefore increasingly include the ability of companies to adequately assess environmental and social risks. PG&E has been called one of the first “climate-induced cases of bankruptcy”.

Other environmentally relevant shareholder resolutions (N.B. 30 of them) deal largely with the issue of plastic. “Companies such as Pepsico or Starbucks are confronted with demands to implement amended goals and improved guidelines for sustainable packaging systems and recycling,” as Shock explains. That resolution is the second one of this kind to have been filed; the first one last year was approved by a respectable 29.2%.

Governance: board of directors, remunerations, and political donations on the checklist

In the area of corporate governance, almost 5% of the resolutions for the elections of board of directors in the USA achieved less than 80% approval which was a new nine-year low. Remunerations were on the agenda as well, and from January to May 2019, resolutions on board member’s remunerations achieved lower approval rates than in previous years. At the same time, shareholder demands for the publication of political donations by companies were up. At almost 100 AGM resolutions in the USA, this topic set a new high: “Political uncertainties on a national scale and the quickly approaching presidential elections in the USA would have supported this trend,” says Schock.

Much like in earlier years, ESG resolutions were mainly filed at annual general meetings in the USA. The research done by ISS suggests that this was due to legal as well as cultural differences. “Whereas in the USA shares in a company worth USD 2,000 are sufficient to file a resolution at a shareholder meeting, this threshold is much higher in Europe,” Schock explains. For example, in Luxembourg and Austria, the investor has to hold 5% of shares in a company; in Germany, the threshold is 5% or EUR 500,000. In Denmark, Finland, or Sweden, one share is enough. Also, in Europe the general approach is to file a shareholder resolution only in the wake of a failed engagement attempt, whereas in the USA the two often go hand in hand.