“Progressive” ESG Shareholder Activism: Qualitative Trends

“Progressive” ESG Shareholder Activism (full series)
Understanding ESG Activism | Quantitative Trends
Qualitative Trends | Pushing and Pushback

Qualitative Trends in ESG Resolutions

Perhaps even more interesting is how the nature of ESG shareholder resolutions—what they specifically ask companies to do—has shifted over the years to rapidly ramp up the pressure on American business. To quote the publisher’s introduction to the 2021 Proxy Preview, “shareholders are organizing as never before to vote against boards that will not adopt a climate transition plan; disclose diversity, equity, inclusion and racial justice metrics; adopt policies to eradicate systemic racism; and implement the tenets of stakeholder capitalism that they have all pledged to uphold.” That is quite an expansive role for the electorally unaccountable leadership of corporate America to play in our country’s politics and society.

The accelerating demands of ESG activists have even caused some of their traditional allies to waver. In May 2023 the Wall Street Journal editorial board featured a report from the Committee to Unleash Prosperity, which observed (among many other things) that BlackRock—the world’s largest asset manager and widely perceived to be a driving force in the pro-ESG trend—had “begun to retreat from its ESG advocacy on proxy voting as shareholder proposals have become more extreme.” In 2022, BlackRock expressed its reservations that the latest environmental proposals had become “more prescriptive or constraining on companies and may not promote long-term shareholder value.” In other words, ESG activists had finally started pushing things too far even for ESG-friendly BlackRock.

Climate change resolutions have become especially aggressive. Remarking on the 2022 proxy season, Georgeson noted that “while shareholder proposals related to greenhouse gas (GHG) emissions reduction targets of a more general nature were filed in the 2021 season, the majority filed in 2022 explicitly sought targets across Scopes 1, 2 and 3 emissions.” Scope 3 emissions are those not controlled by the company itself, but indirectly related to its operations. Georgeson calculated that at least 55 of the 75 resolutions related to emissions reductions included Scope 3 in their proposals.

The issue of oil and gas financing provides another illustration. As of June 2023, the Ceres database identified 102 total climate change shareholder resolutions that had been filed with banks since 2009, but 47 percent of those were submitted in just the past two years. They have also become dramatically more demanding. In 2009 Citigroup received a resolution asking the company “to cease all financing of [mountain top removal] coal mining.” In 2021, the bank was asked “if and how it intends to reduce the [greenhouse gas] emissions associated with its financing activities” in order to align with the Paris Agreement. By 2022 it was being asked to adopt a policy to “to ensure that the company’s lending and underwriting do not contribute to new fossil fuel supplies inconsistent with fulfilling…credible net zero commitments,” and in 2023 a resolution from Harrington Investments simply went ahead and asked Citigroup to adopt “a time bound phase out” of lending and underwriting to new oil and gas projects. Georgeson noted that 10 different companies had received proposals in 2022 asking them to stop financing or underwriting such projects.

This acceleration is evident in other topics as well. Largely precipitated by the 2020 Black Lives Matter protests, the 2021 Proxy Preview not only detailed a major spike in the number of resolutions asking for various diversity disclosures from companies, but also some substantively new proposals seeking reports “on how racism affects companies and how they plan to combat it”—including through commissioning third-party racial justice/racial equity audits of themselves. Georgeson commented that year on how companies were suddenly finding “themselves on the hot seat . . . to match their words with actions.”

Indeed, the erstwhile environmentally focused As You Sow launched a Racial Justice Initiative in order to “end corporate complicity in systemic racism” and promote an “antiracist perspective” at American companies. The initiative features a “racial justice scorecard” used to evaluate companies based on 27 different criteria. Heavy weight is given to factors like whether the company has undergone a third-party racial justice audit or made certain “racial justice donations,” as well as whether it had released diversity data on employee recruitment, retention, and promotion. Less weighty, but still relevant to a company’s final score, are things like whether it had used the words “Black Lives Matter” and specifically named “victims of police violence” in official statements and whether the company had acknowledged the existence of “systemic racism” and proceeded to identify itself as an “antiracist” company. According to the Proxy Preview, some shareholder resolutions have subsequently featured As You Sow’s scorecard in their proposals.

One of the best ways to illustrate how ESG shareholder resolutions have become more demanding over the past few years is to look at those that were filed by the same proponent with the same company on the same or similar topics. As You Sow is an excellent candidate for such an examination due to its longtime status as a prominent ESG shareholder activist group, its role in publishing the Proxy Preview, and the fact that it makes detailed information about its resolutions easily accessible on its website.

Consider those it has filed with the major electric utility Dominion Energy. In 2011, As You Sow submitted a resolution asking the company to report on any financial risks related to its use of coal. By 2016, it was asking Dominion to report on company plans to reduce its total carbon emissions and to address “potential future threats and opportunities presented by climate change driven technology changes.” As You Sow’s 2021 submission asked Dominion to report on ways in which it could encourage “electrification of the built environment” in order to combat climate change and further its “transition toward enterprise-wide alignment with the Paris Climate Agreement.” The following year, it dispensed with the report request and simply asked Dominion to “revise its net zero by 2050 target” to include Scope 3 emissions or explain why it wouldn’t do so.

A similar pattern played out at Duke Energy. In 2011, As You Sow asked the company to report on any possible financial risks related to its continued use of coal for power generation. In 2017, the request was for a report “assessing the public health impacts of its coal use,” and by 2019, As You Sow was asking “how [Duke] will mitigate” the public health risks it was purportedly causing. Its 2021 resolution requested an annual report on Duke’s upstream supply chain emissions, while its 2022 resolution directly asked the company to “revise its net zero by 2050 target” to include all Scope 3 emissions. That is quite a shift in 10 years.

In 2013, As You Sow asked Amazon to “explore ways it can provide its customers with take-back of used electronics”—essentially a recycling service. Its 2017 resolution requested a report on any environmental impacts resulting from Amazon’s use of foam packaging, but by 2021 a similar resolution had expanded to encompass all “plastic packaging attributable to all Amazon operations,” beginning with the source materials used in plastic manufacturing and continuing “through disposal or recycling.” The next year, it went ahead and asked the company to report on how it could reduce its use of plastics by a full third—a resolution that received 48.9 percent support from Amazon shareholders.

Finally, consider the trajectory of As You Sow’s engagements with Bank of America. In 2011 and 2012, it was simply encouraging the bank to stop using a certain chemical in its receipt paper. By 2020, it was submitting a resolution asking for a report on “risks associated with maintaining its current levels of carbon-intensive lending,” A resolution the following year requested a report on “if and how [Bank of America] intends to reduce the [greenhouse gas] emissions associated with its financing activities” to align with the Paris Agreement. The word “if” was dropped by 2023, when As You Sow simply asked “how [Bank of America] intends to align its financing activities with its 2030 sectoral greenhouse gas emissions reduction targets,” including the specific actions it would take, the reductions that would purportedly be achieved, and the timeline for doing so.

In the next installment, ESG is facing increasing pushback in corporate America.