Shareholders Can (And Do!) Beat Bad Policy
The Trump administration continues to do its best to weaken government regulations that protect citizens from environmental harms and provide a social safety net. In terms of federal policy, corporations now have more freedom than they’ve had in years to pursue their bottom line, regardless of impact on people and the planet. When positive change doesn’t come from the federal government, or from corporations, who can we rely on? More than ever, it is clear that investors who use their voices as a powerful force for positive change can make a difference at companies that want to thrive and survive in the future.
Investors are acting swiftly in the face of new social challenges. New shareholder coalitions are responding to gaps in government action, including Investors for Opioid Accountability, Farm Animal Investor Risk and Return, Investors for Indigenous Peoples Working Group and the Investor Alliance for Human Rights. Shareholders are engaging companies on issues from everyday headlines—guns, cybersecurity, modern slavery, sexual harassment and climate change—all of which pose material risks for investors.
Last year’s record high votes for shareholder resolutions are the result of major fund families—including BlackRock, Vanguard and State Street—finally losing patience with some companies’ responses to climate risk. This is a good first step and affirms the long-held views of socially responsible investors about the risks energy companies pose to asset owners, the economy and the planet.
Clearly, the investment world believes ESG risks and opportunities are material to corporate fortunes.
Investors must continue to be dauntless. Despite a majority vote at ExxonMobil, the company’s response has been an inadequate report that continues to rationalize business-as-usual and seems likely to ensure both the company’s financial collapse and a world warmed by as much as 5°C. One option some investors are considering is to take dissent further and vote against some or all board members at companies that do not respond to material shareholder concerns, especially after a majority vote.
Environmental, social and governance (ESG) investing continues its rise, and now accounts for one out of every $5 invested. Mainstream investment data providers including Bloomberg, Morningstar, MSCI and Thomson Reuters offer ESG data for analysts to use when assessing companies. Credit ratings agencies like Moody’s are including ESG metrics in their rankings. Clearly, the investment world believes ESG risks and opportunities are material to corporate fortunes.
On the legislative front, however, basic shareholder rights are under attack in Congress. Provisions in the Financial CHOICE Act, which passed the House of Representatives in June, would allow only ultra-large shareholders to file resolutions, all but eliminating innovative new ideas coming from the rank and file. This bill faces an uncertain future in the Senate but threatens shareholder voices. In addition, a new Securities and Exchange Commission Staff Legal Bulletin, released in November, seems to open up new ways to limit shareholders’ ability to file some resolutions that have had substantial investor support for years. The full impact of the bulletin remains to be seen, but it is also of significant concern.
As long as shareholders have a voice, however, they will use it. Proxy Preview 2018, a collaboration between As You Sow, Proxy Impact, and Sustainable Investments Institute (Si2), is a preview of what shareholder engagement for positive change looks like in the coming year. It shows that shareholder proponents remain committed to hard-won gains that ensure transparency between corporations and their shareowners. Whatever the political winds of the moment, the markets are using ESG data to better determine risk and long-term return. The issues that shareholder proponents are raising this year, and the traction they have with investors at large, highlight key business concerns companies must consider. Restricting shareholders ability to alert companies to future risks and bring fresh ideas to the table would be a mistake with long-lasting implications.
Just a glance at Proxy Preview 2018 will tell you what a big year this is for socially-guided shareholders. Momentum is on our side. Investors know that sustainable business is their best shot at financial success, and they’re realizing their power more and more each year. Now is not the time to slow down. We are collectively owners of corporations. Their success is our success, which cannot be measured in short-term profits alone, but also in smart, sustainable decisions that don’t adversely affect the planet or its people. Proxy Preview has been around for 14 years, and year over year, I’ve been able to see the impact investors make. We don’t need Marvel superheroes when we’ve got smart investors unleashing their hidden powers.