Proxy season results show that support for ESG efforts continues to decline

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Shareholder support for environmental and social issues at U.S. companies waned for a second straight year as high-profile campaigns led by progressive investors at ExxonMobil and Starbucks failed to gain traction.

As the company’s annual meeting season ended in June, data showed median support for environmental and social shareholder proposals at Russell 3000 companies was 21 percent and 18 percent, respectively, according to ISS-Corporate, a data provider, about the same as last year and significantly below record levels for these matters in 2021.

Considered a niche strategy for decades, environmental, social and governance (ESG) investing boomed in 2020 with record inflows. In 2021, ESG activism scored an unprecedented victory at ExxonMobil largely due to concerns over the oil major’s climate change strategy.

Only two climate-related shareholder proposals have received majority support in the Russell 3000 companies this year. Both proposals forced companies to disclose more information about their efforts to reduce greenhouse gas emissions.

No diversity, equity and inclusion (DEI) shareholder proposals have exceeded 50% support this year, while support at Adobe, Berkshire Hathaway and Eli Lilly has declined this year, according to the Conference Board. Other major ESG fights this year included Exxon’s board directors over a courtroom showdown with two climate-focused shareholders.

The decline in support points to an average turnover for BlackRock, Vanguard and other large asset managers, said Douglas Chia, president of Soundboard Governance Consulting and a senior fellow at Rutgers Law School.

Progressive-leaning pension funds in California and New York, as well as Norway’s oil fund, are “basically doing the same thing they’ve always done,” he said. But BlackRock and Vanguard are “backing off. They revert to passivity [ESG] when they took a step and were more active for a while.’

BlackRock and Vanguard have supported fewer environmental and social proposals since 2021. However, BlackRock continues to show a slightly greater willingness to support ESG issues than Vanguard, according to their vote tallies this season.

BlackRock voted in favor of a proposal at the fast-food chain Jack in the Box, asking the company to provide more information on targets to reduce greenhouse gas emissions.

“Support for the proposal may accelerate the company’s progress in climate risk management and/or oversight,” BlackRock said.

At Alico, a Florida-based orange producer, BlackRock voted against three board directors “for failing to adequately account for diversity on the board.” Vanguard voted with the companies in both cases and both companies won. Asset managers are required to report their full proxy voting records later this year.

Both asset managers declined to comment.

Vanguard also threw cold water on an ESG shareholder event at Exxon this year. Angered by the oil company’s decision to take two shareholders to court over an anti-climate change petition, several ESG-leaning pension funds voted against the company’s board members. However, Vanguard voted for the company’s board members, who were easily reappointed at the annual meeting in May.

In another example of ESG activism this year, unions tried to force three new board directors onto the Starbucks board. However, the campaign did not pass a vote after the Institutional Shareholder Services agent recommended to union board members.

“[ESG] will come back from where it is now,” said David Larcker, director of the Corporate Governance Research Initiative at Stanford University. And ESG will “eventually focus strictly on climate issues,” he said, rather than social issues. “I would have expected a lot less diversity audits.”