Beyond the climate: a closer look at environmental proposals | Orrick, Herrington & Sutcliffe LLP
ESG-related shareholder proposals have featured prominently in the past proxy season, with nearly 40% of large-cap public companies facing a shareholder vote on ESG topics in the first half of 2022 As noted in a previous article, we continue to review ESG-related proposals submitted to Fortune 250 companies during this period to identify emerging trends and anticipate future proposals.
The first half of 2022 saw a significant increase across the Fortune 250 in proposals requesting additional disclosure reports on a range of environmental impact issues. While most environment-focused proposals were related to climate change governance and disclosure, the first half of 2022 saw a growing number of proposals that covered other environmental topics. We identified 13 such proposals in the first half of 2022, compared to just four in all of 2021. The majority (53%) requested disclosure reports detailing strategies, usage and trend metrics, efforts of compliance and similar information on single-use plastic and packaging materials. . The rest requested similar disclosure reports on prevention of deforestation (6%), use of pesticides (6%), water management (6%), financing of fossil fuel supply (6%) and similar expenses related to environmental impact (23%).
The companies’ statements of opposition primarily acknowledged the risks posed to the company and the environment, expressed common concern about the issue raised, and pointed to applicable existing disclosures, reports and policies as confirmation that the company is responding. already. Opposition statements often concluded that the preparation of more reports would only create additional administrative burdens that would be better spent on existing or planned operational initiatives in the field.
Although the success rate of these proposals has remained low – with only one success in 2021 and the first half of 2022 – companies should take note of the substantial increase in the prevalence of these proposals and the fact that 25% of proposals that failed to pass in the first half of 2022 received 40% or more support, with two such proposals receiving nearly 50% of the vote. The growing number of extra-climate environmental proposals is particularly relevant in light of the SEC’s recent proposed amendments to the Shareholder Proposal Exclusion Basis which, if adopted as proposed, would further restrict the ability of a company to exclude proposals that a company believes it has already “substantially implemented”, among other exclusions.
ESG-focused investment funds and shareholder advocacy groups submitted the majority of these proposals to the Fortune 250, accounting for 75% in 2021 and 62% in the first half of 2022. These investment funds and groups ESG-focused shareholder advocacy typically targeted companies for which an element of environmental impact is material to the business and/or supply chain, and for which the company is perceived to have poor disclosures by compared to his peers.
For example, in the case of the two proposals that were adopted, one called for a multinational home improvement retailer to be accountable for its efforts to eliminate deforestation and forest degradation in its supply chain. supply, while the other requested that a company, which is a leading producer of transport and industrial plastics, report on how it reduces the amount of plastics released into the environment and effectively manages this risk. In the case of the first proposal, Institutional Shareholder Services (ISS), a leading proxy advisor, recommended the proposal on the grounds that the lack of information on these topics posed potential reputational risks to the company. , and also noted that its main competitor provided such disclosure. Similarly, in the case of the other company, ISS recommended the proposal on the grounds that companies that produce plastic face significant risks related to pollution and regulated reduction in demand for their products, and several of their peers had pledged to disclose this information. .
This trend suggests that companies whose business and/or supply chain are materially impacted by plastics, packaging materials, pesticides or similar environmental impact items should expect type of shareholder proposal over time and potentially to the support of proxy advisors. These companies should consider internal peer group disclosure monitoring programs to track market practices, and should monitor environmental impact reports or activist group ranking reports that identify companies as having disclosures. deficient. By adjusting or supplementing related proxy statements and disclosures in ESG reports in response to these identified deficiencies, companies may be able to avoid receiving shareholder proposals calling for votes that could force transparency increased or unforeseen, and may be in a better position to prevail over an expensive solution. shareholder proposal.