New resolutions about the nature of corporate purpose this year largely subsume the other sustainability categories. Metrics reporting proposals—ubiquitous 10 years ago—are nearly gone. In addition to the new corporate purpose idea, there remain proposals familiar from recent years that ask for specific linkages between executive compensation and different types of social or environmental performance goals. A few proxy voting resolutions round out the tally. In all for 2021, there are 36 sustainability filings, down from a peak of 58 three years ago. Eight await the outcome of SEC challenges and four have been withdrawn so far.
Corporate Purpose
Fourteen proposals ask companies to become public benefit corporations and four resubmitted from last year ask about the implications of the CEOs signing the Business Roundtable (BRT) Statement of Purpose.
Reincorporation: At seven companies from several different sectors—S&P Global, Salesforce.com, BlackRock, Caterpillar, Yelp, Tractor Supply and United Parcel Service—the proposal coordinated by The Shareholder Commons (TSC) asks the board to
take steps necessary to amend our certificate of incorporation and, if necessary, bylaws (including presenting such amendments to the shareholders for approval) to become a benefit corporation in light of its adoption of the Business Roundtable Statement of the Purpose of a Corporation...
BETA ACTIVISM: BENEFIT CORPORATIONS AND EXTERNAL COST DISCLOSURE
FREDERICK ALEXANDER
Founding Partner and Chief Executive Officer, The Shareholder Commons
SARA E. MURPHY
Chief Strategy Officer, The Shareholder Commons
For far too long, ESG activism has been defined by proposals designed to improve a company’s financial performance or reduce its risk profile. While “doing well by doing good” can create positive outcomes, it does not preserve systems under threat from profits achieved through externalized social and environmental costs.
The proposal notes that Delaware corporations (all the recipients) place obligation on their directors to put shareholders’ interests first, excluding other stakeholders’ interests. It says this “contradicts” the BRT “commitment.” If a company were to become a public benefit corporation (PBC), it could legally consider the interests of more parties and overcome the problem of the BRT statement’s “empty promise.” It is in the long-term interest of universal owners to do so, the proposal argues, because publicly traded companies have been externalizing more than $2 trillion annually in social and environmental costs and this depresses the markets and thus overall shareholder returns.
The proponent in each instance but one is James McRitchie, who is well known for more for prolifically filing corporate governance resolutions that ask for requiring directors to be elected by a simple majority vote, proxy access or the right for shareholders to call special meetings. This year he has expanded into sponsoring a variety of proposals on ESG governance as well as political spending. The other proponent (at Salesforce.com) is Change Finance, an independent investment advisor specializing in sustainable financial solutions. It is a new shareholder proponent.
The proposal at Alphabet and Facebook considers their dual class stock status. It asks each company to “take steps necessary to amend our certificate of incorporation and, if necessary, bylaws (including presenting such amendments to the shareholders for approval) to become a public benefit corporation...” At Alphabet it says this action would be “contingent on Class B stockholders converting sufficient Class B shares to Class A or Class C to ensure that at least 60% of the Company’s voting power is not beneficially owned or controlled by the holders of Class B Shares,” who are the company’s founders. At Facebook it notes the action would be “contingent on our controlling shareholder converting sufficient Class B shares to Class A to ensure that at least 60% of the Company’s voting power is not beneficially owned or controlled by Mark Zuckerberg.”
Proposals also ask Bank of America, Chevron and ExxonMobil to “request the Board approve an amendment to the Company’s Restated Certificate of Incorporation to become a Benefit Corporation pursuant to New Jersey law and to submit the proposed amendment to shareholders for approval.” These proposals use the same justification noted above for requesting the PBC reincorporation, and stress the oil companies’ externalized environmental costs and climate change impacts of their operations.
SEC action—3M is arguing at the SEC that the proposal is an ordinary business issues, while Tractor Supply said it has, in effect, been implemented. As of mid-February, the SEC had not responded.
Reporting: Harrington Investments and As You Sow have resubmitted proposals that ask three large banks about their BRT commitments and what they mean. The resolutions differ somewhat:
At Goldman Sachs (where it earned 6 percent last year), the proposal asks if and how the BRT statement is reflected:
in our Company’s current governance documents, policies, long term plans, goals, metrics and sustainability practices and publish its recommendations on how any incongruities may be reconciled by changes to our Company’s governance documents, policies or practices. (At Goldman it omits reference to incongruities.)
At BlackRock (3.4 percent last year), it seeks a report:
based on a review of the BRT Statement [that will] provide the board’s perspective regarding how our Company’s governance and management systems should be altered if at all to fully implement the New Statement of Purpose.
At JPMorgan Chase it asks for a report
regarding potential conversion of JPMorgan Chase to a Delaware Public Benefit Corporation, including review of options, in the course of such a conversion, for the company to:
Adopt a particular restated “purpose” such as promoting a sustainable global economy;
Alter fiduciary obligations with respect to accounting for stakeholder interests;
Alter duties of board committees, including the audit, compensation, corporate governance and nominating, and public responsibility committees;
Alter company policies or standards of decision so as to guide fiduciary decision-making when interests of stakeholders may conflict, and/or
Enable the company to operate in a responsible and sustainable manner.
Harrington withdrew after JPMorgan issued a report explaining why it would not change its incorporation status. The company had argued the proposal was ordinary business and already had been implemented. The withdrawal came before any SEC response.
Executive Pay Links
A dozen proposals ask companies to report on how, or if, they link executive compensation—typically bonus pay—to a wide variety of environmental and social performance metrics.
ESG metrics: NYSCRF take the most general approach, with a pending proposal asking McDonald’s, and Tenet Healthcare
to examine and report to shareholders, at reasonable cost and omitting proprietary information, describing if, and how, it plans to integrate ESG metrics into the performance measures of named executive officers under the Company’s incentive compensation plans. “ESG metrics” is defined as how environmental, social, and governance considerations, and related financial impacts, are integrated into corporate strategy over the long term.
Zevin Asset Management withdrew a proposal at Apple that also took a general approach, asking for “a report assessing the feasibility of integrating sustainability metrics into performance measures, performance goals or vesting conditions that may apply to senior executives.” The proposal earned 12.1 percent last year.
Withdrawals—NYSCRF withdrew at Pilgrim’s Pride after reaching an agreement. The proposal expressed concerns about the company’s response to worker health and safety in the COVID-19 pandemic, as well as a record of work- related injuries at the company. NYSCRF also reached an agreement at Treehouse Foods.
SEC action—McDonald’s said in its SEC challenged that the proposal will be moot when it releases its new executive performance metrics on February 18.
Diversity: At Alphabet, Zevin Asset Management wants
a report assessing the feasibility of integrating sustainability metrics, including metrics regarding diversity among senior executives, into performance measures or vesting conditions that may apply to senior executives under the Company’s compensation plans or arrangements. For the purposes of this proposal, “sustainability” is defined as how environmental and social considerations, and related financial impacts, are integrated into long-term corporate strategy, and “diversity” refers to gender, racial, and ethnic diversity.
Diversity is also the concern of NorthStar Asset Management in a resolution to Hannon Armstrong Infrastructure Capital, a sustainable infrastructure company. NorthStar wants a report “evaluating the benefits and drawbacks of including metrics regarding diversity among the Senior Management Team as one of the performance measures for the CEO under the Company’s annual and/or long-term incentive plans. For the purposes of this proposal, ‘diversity’ is defined as gender, racial, and ethnic diversity.”
Climate change: As You Sow asks General Motors and Valero Energy for a report “evaluating and disclosing if and how the company has met the criteria of the Executive Renumeration Indicator, or whether it intends to revise its policies to be fully responsive to such Indicator.” It explains in the body of the proposal this indicator is defined by the Ceres Climate Action 100+ initiative that aims to cut GHG emissions to zero by 2050, linking pay to carbon reduction for all types of emissions. At GM, the proposal says the company’s GHG target will not meet net-zero emissions by 2050 and points to its continued manufacture of “large SUVs and trucks.” The Valero proposal also notes that company’s emissions reduction targets, but also says it has yet to tie them to pay.
Another proposal also suggests a climate link, but at Evergy, it asks about how the board might link “metrics for reduction of Evergy’s carbon output or increasing clean energy adoption” to pay, “while removing the coal-fired generation availability metric from the company’s short-term incentive plan.”
Drug prices: Friends Fiduciary raises concern about what it sees as excessive drug prices at AbbVie, where the request is for a report about “the feasibility of incorporating public concern over high drug prices into the senior executive compensation arrangements described in AbbVie’s annual proxy materials.” This proposal earned 24.4 percent last year.
Privacy: The final proposal is a resubmission that earned 31 percent last year at Verizon Communications. From Trillium Asset Management, it asks for a report
assessing the feasibility of integrating user privacy protections into the Verizon executive compensation program which it describes in its annual proxy materials. This proposal does not seek greater disclosure or information regarding cybersecurity (the criminal or unauthorized actions), but rather is focused on legally permissible and permitted uses of data.
Metrics Disclosure
Only two resolutions ask for sustainability reports this year, and both are still pending. Domini Social Investments wants Beyond Meat to provide an annual report “describing the company’s environmental, social, and governance (ESG) policies, performance, and improvement targets and quantitative metrics.” The resolution says the company’s current sustainability reporting is “limited” and that the company has not responded to repeated requests for more information about its “climate-related risks, supply chain management and agricultural practices, including use of agrochemicals or organic ingredients.” Domini says better tracking and reporting on ESG issues would help the company generally and cites well-known and widespread research backing up its assertions, pointing the company to initiatives such as the Global Reporting Initiative, CDP, and the Sustainability Accounting Standards Board (now the Value Reporting Initiative).
The Missionary Oblates of St. Mary Immaculate has a similar proposal at Shake Shack, seeking
an annual sustainability report, describing the company’s environmental, social, and governance (ESG) policies, performance, and improvement targets, which could include a discussion of management strategies and quantitative metrics for reducing food waste generated from the company’s operations and value chain (where relevant).
The order provides a rationale similar to that proffered by Domini in the other resolution. The proposal argues that the company provides only “anecdotal evidence related to ESG subjects, such as very brief discussions of ‘sustainable agriculture’ and ‘oil management,’” but gives no quantitative data. Instead, the proposal argues for more disclosure of information relevant to the restaurant industry, including “food & packaging waste management, labor management, energy, water, food safety, and nutritional content.” It highlights food waste as a particular concern and notes that competitors including Wendy’s and Yum Brands “have made commitments through the EPA’s Food Loss and Waste 2030 Champions program to reduce food loss 50 percent by 2030.”
Proxy Voting
Proponents have filed or plan to file resolutions at three investment managers about their climate-related proxy voting policies. A resubmission at BlackRock asks it “initiate a review assessing BlackRock’s 2019 proxy voting record and evaluate the Company’s proxy voting policies and guiding criteria related to climate change, including any recommended future changes.” Mercy Investments withdrew this proposal in 2020 after a company commitment. Boston Trust Walden plans to file this resolution at several of the Vanguard mutual funds, but the various funds do not always hold shareholder meetings each year and a proposal must be filed on a fund-by-fund basis.
Zevin Asset Management has a similar request at T. Rowe Price, which last year earned 14.3 percent. It also wants a review of proxy voting and says the report should include “an assessment of any incongruities between the Company’s public statements and pledges regarding climate change (including ESG risk considerations associated with climate change), and the voting policies and practices of its subsidiaries.” Last year, T. Rowe Price said it already considers climate change and ESG issues when it values companies and in voting proxies, but that its fiduciary duty to clients takes precedence over its position on climate change. The company is a signatory to the UN Principles for Responsible Investment and does list ESG issues, but not specifically climate change, in the proxy voting guidelines for its investment managers.
A new proposal, part of The Shareholder Commons campaign, is seeking a report from State Street about the societal impact of its proxy voting practices. It asks for:
a report as to how its voting and engagement policies, which focus solely on individual corporation materiality to the exclusion of capital markets materiality, affect the majority of its clients and shareholders, who rely primarily on overall stock market performance for their returns, rather than upon the returns of individual companies.
The body of the proposal includes the TSC analysis about the problems of externalized costs which universal owners face, saying that State Street, like other broadly diversified investment managers, relies “on healthy social, economic, and environmental systems to support all corporations.” It says State Street should focus its proxy voting policy not only on “company-by-company materiality,” because this allows costs to be externalized. Instead, it should consider “market materiality” and use the proposed study to “help shareholders determine whether to seek a change in corporate direction, structure or form in order to better serve their interests.” (Other proposals from TSC are on p. 30, 39, 50 and 64.)
IS THIS THE YEAR BLACKROCK ALIGNS CLIMATE POLICY AND PROXY VOTING?
KATIE MCCLOSKEY
Vice President of Social Responsibility, Mercy Investment Services
BlackRock CEO Larry Fink’s annual letters to investees and clients are hotly anticipated, including by shareholders seeking that the company use its proxy voting practices to be more supportive of climate change proposals.