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US research details where ESG proposals fail, gain support

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  • US research details where ESG proposals fail, gain support

GLOBAL – Environmental and social shareholder proposals are gaining voting support from investors in US public companies, according to a study by the Investor Responsibility Research Center Institute (IRRCi).

Between 2005 and 2011, average support for these proposals more than doubled, from about 10% to more than 20%.

At the same time, the proportion of shareholder-sponsored resolutions on environmental, social and governance (ESG) matters grew by one-third, from about 30% to 40%, for all proposals going to a vote.

The proportion of higher scoring proposals also increased.

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Jon Lukomnik, IRRCi executive director, said proposals examining political spending, climate change issues, board diversity and energy extraction were of particular interest.

"When momentum grows behind a prominent proposal, it may be a predictor of potential changes to company practices and shifting investor priorities," he said.

"In some cases, these views may become so widely shared that other stakeholders may turn to policymakers to request changes across an industry."

He noted that proposals to gain support usually had three distinct characteristics in common and appeared to be connected with "highly prominent" ESG proposals.  

Successful proposals were often well targeted, combining concerns over board performance into ESG matters.

IRRCi said this demonstrated a "perceived need for other governance-related change".

The timing of proposals was also cited, particularly if the proposals can be tied into "headline-making events" or ongoing regulatory and legislative change, the organisation said.

Additionally, it found that the involvement of outspoken and declared socially responsible investment houses or public pension funds boosted success rates.

"These investors play a leading role in shaping the shareholder proposal and, by extension, the engagement landscape," the organisation said. "By contrast, proposals submitted by special interest groups or individuals tend to receive lower levels of support."

The research also found that proposals on greater disclosure received significant support, but that ESG-themed proposals that investors felt would be addressed through a company's exiting public or non-corporate policy would often fail to garner interest.

Between 2005 and 2011, average support varied greatly for each of the proposal topics, from 3% for tobacco risks to 31% for energy extraction techniques/waste.

The research is based on roughly 1,300 shareholder-sponsored ESG proposals, voted on across Russell 3000 companies.

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