The record-breaking 2021 proxy season suggests that a major power shift is well under way. Investors clearly emphasized that boards report to shareholders and accurate information is required. We must stand together as investors to transform the current extractive economy into the emerging regenerative economy based on justice and sustainability. It not optional. It is a survival imperative.
Shareholder action is surging even as we grapple with new SEC restrictions, pandemic-induced market volatility, climate change impacts on every balance sheet, a polarized political landscape, the Russian war against Ukraine, and ever more interwoven global supply chains.
Investors have filed 100 more shareholder resolutions than last year at this time, breaking yet another record. The attempt to silence shareholder voices has, instead, prompted them to get louder. This uprising is occurring while investors and fiduciaries increasingly understand that systemic risk affects all players in the capital markets, inspiring leading companies onto the path of serving all stakeholders. ESG investing is booming because it promises less risk, but also brings with it the perils of greenwashing. We clearly need assurance systems for all disclosed material information that provide all market players with truly comparable data.
The zeitgeist of resolutions in 2022 involves transformation in three main areas: 1) Climate change affects each company and its supply chain, employees, and customers. Every company must cut emissions in half by 2030, and leading companies already are on the way. 2) Racial justice, gender equality, diversity, and equity are critical to every company needing to attract and retain the best and brightest. Companies are getting on the path by using clear metrics to quantify the problem and take action. 3) Polarized politics have made election spending riskier. In the past, companies bought both sides of the aisle. Now, with a deeply divided country and a nationwide set of stakeholders with clashing views, some are choosing to simply cut off the flow of money while others are challenged to explain incongruent corporate policies and political spending.
Responsible, sustainable corporate behavior is predicated on accurate, verified disclosure. Most shareholder proposals ask for information, so shareholders can understand how far their companies need to travel. Any issue that is “material” – what a reasonable investor requires to make investment decisions – is therefore “financial,” and related data should be third-party verified. Board audit committees need to step up efforts to oversee ESG disclosures, making sure reports are accurate and timely, so the full picture of investor risks and opportunities are revealed.
We are on the cusp of systemic economic transformation. Investors feel the momentum, and so do company executives. Shareholders are pressing forward with new tactics, tired of talk, and demanding action at a scale appropriate to the risk. Employees in corporate retirement plans who are trapped in target-date passive index funds are demanding sustainable options. After years of being tied to asset managers’ proxy voting policies, some investors can now use fractional shares to align their own voting and values. Finally, numerous tech startups are empowering retail shareholders to organize and wield their power.
Shareholders are organizing as never before to vote against boards that continue to use their wealth and privilege for epic destruction of the ecosystems upon which we all depend for survival. Shareholder democracy seems particularly critical this year given the attacks on civil society from authoritarians around the world. Companies that will not adopt and implement a climate transition plan; refuse to disclose and act on diversity, equity, and inclusion; oppose the eradication of systemic racism; continue to try and exert influence in politics; and will not implement the tenets of stakeholder capitalism will not win the loyalty of their customers and shareholders.
The message from shareholders to boards of directors is clear. Don’t be left behind. The inflection point is now. Become a leader, get on the path and thrive, or prepare to wind down.
Andrew Behar
CEO, As You Sow