Proxy season results show support for ESG efforts continues to decline

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Shareholder support for environmental and social issues at U.S. companies has declined for the second year in a row as high-profile campaigns by progressive investors at ExxonMobil and Starbucks failed to gain traction.

According to ISS-Corporate, a data provider, median support for environmental and social shareholder proposals among Russell 3000 companies ended in June, roughly flat from last year and well below record levels for these issues in 2021.

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

This year, only two climate-related shareholder proposals received majority support among Russell 3000 companies. Both proposals required companies to publish more information about their efforts to reduce greenhouse gas emissions.

No shareholder resolution addressing diversity, equity and inclusion (DEI) has surpassed 50 percent support this year, with support declining at Adobe, Berkshire Hathaway and Eli Lilly, the Conference Board said. Other major ESG battles this year included Exxon executives’ courtroom confrontation with two climate-focused shareholders.

The decline in support suggests that BlackRock, Vanguard and other large asset managers are experiencing something of a reversion to the mean, said Douglas Chia, president of Soundboard Governance, a consulting firm, and a senior fellow at Rutgers Law School.

Progressive-oriented pension funds in California and New York, as well as the Norwegian oil fund, “are essentially doing the same thing they always have,” he said. But BlackRock and Vanguard “are pulling back. They’re going to be more passive again on [ESG] when they took it a step further and became more active for a while.”

BlackRock and Vanguard have backed fewer environmental and social proposals since 2021. But BlackRock still shows slightly more willingness to support ESG issues than Vanguard, according to a tally of their votes this season.

BlackRock voted in favor of a proposal from fast food chain Jack in the Box that asked the company to provide more information on its greenhouse gas reduction targets.

“Supporting the proposal could accelerate the company’s progress on climate risk management and/or oversight,” BlackRock said.

At Alico, a Florida orange producer, BlackRock voted against three directors “because they did not adequately consider board diversity.” Vanguard voted with the companies in both cases, and both companies won. Asset managers must report their full proxy voting records later this year.

Both asset managers declined to comment.

Vanguard also threw cold water on an ESG shareholder campaign at Exxon this year. Angered by the oil company’s decision to sue two shareholders over a climate change petition, several ESG-friendly pension funds voted to defund the company’s board members. Vanguard, however, voted to support the company’s board members, who were easily re-elected at the company’s annual meeting in May.

In another example of ESG activism this year, labor unions attempted to force three new directors onto Starbucks’ board. But the campaign failed to reach a vote after proxy advisor Institutional Shareholder Services advised against the union directors.

“[ESG] “It will come back from where it is now,” said David Larcker, director of the Corporate Governance Research Initiative at Stanford University. And ESG will “ultimately focus narrowly on climate issues,” he said, rather than societal concerns. “I would expect to see far fewer diversity audits.”