The Power of Shareholder Advocacy: Influencing Companies’ Decisions

Kay Kramer, CFP®
Nov 22, 2021 2:15:00 PM

BFP Shareholder advocacy

Shareholder advocacy is a significant part of Sustainable Responsible Impact (SRI) investing and a crucial tool in making changes for the good of the environment, social issues, and governance (ESG). Currently, the topic of climate change is the recipient of the majority of shareholder resolutions.

So what exactly is shareholder advocacy? Shareholder advocacy encompasses a variety of strategies SRI investors use to engage companies and influence policies about ESG issues. Shareholder advocacy can happen in three ways: engagement with the company around a specific issue, filing a shareholder resolution, and voting proxies. If you own a stock or a mutual fund, you may be aware of the emails or mailings asking you to vote on board members of companies and shareholder resolutions.

For holders of mutual funds, you may be voting for the board members overseeing the mutual fund or voting for a possible change in the management/ownership of the mutual fund. So, you rarely get to vote specifically on an issue, but the mutual fund managers are important. Mutual fund managers vote on shareholder resolutions on companies they own and urge them to pursue business practices that address climate change, support positive social change, promote good governance, and many other issues.

Engagement

Many SRI funds actively engage companies in conversation about issues they are concerned about. Often investors collaborate with other large investors to advocate on a specific issue. As You Sow is a nonprofit in shareholder advocacy helping investors increase corporate responsibility. Another group is the Interfaith Center for Corporate Responsibility (ICCR).

Shareholder resolutions

Any shareholder owning more than $2,000 in company shares can file a resolution (proposal) with a company. There are usually several common outcomes:

  • An agreement is reached between the company and those filing the resolution, and the resolution is withdrawn.
  • The company challenges the validity of the resolution.
  • The resolution is published in the proxy for a vote at the annual meeting.

Hundreds of resolutions are filed every year, and in 2020, 44% were withdrawn, usually after some agreement has been reached.

Proxy Voting

One share equals one vote, so collaborating with others can make a significant difference. A resolution doesn’t need to have overwhelming support to make a difference. Companies start to pay attention if even 10% of shareholders vote for a resolution that the company opposes. The hope is that further dialogue with the company results and change occurs.

Many shareholder resolutions ask for more transparency from the companies in terms of their plans for addressing diversity, climate change, or human rights issues. Another area of request is more oversight and disclosure on a company’s political spending. In response, most companies are now putting more formal oversight in place.

Companies generally want their annual meetings to showcase the company and the future. They don’t want press on what shareholders are asking, so they are motivated to engage with stakeholders.

As a result, the 2021 proxy season saw record high votes in favor of climate-related shareholder proposals. Average favorable votes increased dramatically this year. According to Proxy Preview, eight climate change proposals earned majority votes.

2021 board resolutions on climate change:

Conoco Phillips – Resolutions were approved to set stringent greenhouse gas reduction goals, integrate carbon asset risk into scenario planning, and align environmental goals with public policy.

Procter & Gamble – Resolutions addressed deforestation and forest degradation in its wood pulp and palm oil supply chain. Sixty seven percent of shareholders supported the proposal, despite the company’s opposition.

Exxon – A small hedge fund called Engine No. 1 led a successful proxy campaign that filled three spots on the company’s board with more environmentally focused directors. This was a significant victory.

General Electric – Almost all shareholders who voted – 98% – were in favor of the company detailing its net-zero emissions plan across its operations and products.

How to Know if You Are a Good Candidate for SRI?

SRI investing might be right for you if you are interested in wielding your financial power to impact important issues. Sustainable, Responsible, Impact investing represents a complex landscape of opportunities that can support your financial goals while representing your values. By strategically aligning your investments with entities that promote environmental or social justice goals and demonstrate good corporate governance, it’s possible to save for retirement and make a positive difference in the world.

SRI: What It Is and How To Do It

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