More shareholder resolutions were filed in the 2022 proxy season than in the previous year, with approximately 932 environmental, social, and governance proposals submitted at U.S. companies through November, compared with 903 in 2021, according to ISS Voting Analytics data. The number focusing on environmental and social issues is estimated to have risen from 500 in 2021 to approximately 588 in 2022. Though many have since been withdrawn, many have been or will be voted on. According to data from ISS Corporate Solutions, 578 shareholder resolutions on ESG issues have either been voted on or were pending in annual meetings through November this year.
What are Fossil Fuel Lending and Underwriting Proposals?
This report examines proposals focused on bank policies regarding the financing of new fossil fuel exploration. A typical proposal described its aims like this: “Shareholders request that the Board of Directors of [Company] adopt a policy by the end of 2022 committing to proactive measures to ensure that the company’s lending and underwriting do not contribute to new fossil fuel supplies inconsistent with fulfilling the IEA’s [International Energy Agency] Net Zero Emissions by 2050 Roadmap and the United Nations Environmental Program Finance Initiative (UNEPFI) recommendations to the G20 Sustainable Finance Working Group for credible net zero commitments.”
All but one of the companies that have been targeted by such proposals are banks that belong to the Net Zero Banking Alliance (NZBA), which means they have made a commitment to align their financing with a maximum temperature rise of 1.5°C. UNEPFI, which convenes the NZBA, released a paper indicating that any investment in new fossil fuel development is not aligned with the 1.5°C goal. The IEA concluded in another paper: “There is no need for investment in new fossil fuel supply in our net zero pathway.” The proponents are asking the banks, which continue to finance new fossil fuel exploration and development, to “close the gap between words and action,” and change their policies towards such financing. Among the institutions targeted by the proposals, only insurer The Travelers Companies is neither a member of NZBA nor the Net Zero Insurance Alliance, a group set up by AXA, Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re, and Zurich Insurance.
All seven proposals of this type went to a vote during the 2022 proxy season. All but one received support between 10% and 13% of votes cast, with an average support level of just over 11% of votes cast FOR and AGAINST. The last resolution to be voted on, at Morgan Stanley, received support from only 8.5% of votes cast FOR and AGAINST.
The level of support received for this new type of proposal was relatively low compared to other environmental and social shareholder proposal campaigns. Some of those proposals recently received considerable support even in their first year, often reaching voting levels in the 30%-40% of votes cast. A resolution that asked JPMorgan to set absolute contraction targets for the bank’s financed greenhouse gas emissions, also in line with UNEPFI recommendations, received support by 15% of votes cast. On the other hand, other ESG resolutions at the banks received higher levels of support.
Potential reasons for the low level of support for these proposals may involve perceptions by investors and advisory firms that resolutions on financing new fossil fuel development were too prescriptive. BlackRock indicated in its Stewardship Report that it did not support this kind of proposal due to the prescriptive nature of the request. The benchmark policy of the proxy research advisory service of ISS issued negative recommendations for each of these proposals. In addition, concerns over the recent price increases in oil and gas and other geopolitical events, such as the war in Ukraine, sanctions against Russ and interruptions to fuel supplies, may have led many investors otherwise concerned over climate risk to vote against these resolutions.
By: Paul Hodgson, Senior Editor, ISS Corporate Solutions