Investors Crank Up Pressure on Companies With Record Climate, Race Proxy Proposals

McDonald’s Corp. is facing questions about animal welfare. Meta Platforms Inc. is being confronted by concerns that its metaverse is causing psychological damage. And the biggest U.S. banks are being held to account for their contributions to climate change.

These are just some of the issues that shareholders will decide at upcoming annual meetings in what’s shaping up to be a contentious year, with a record of more than 200 environmental and social resolutions submitted to corporations across America. The world’s largest money managers led by BlackRock Inc. have thrown unprecedented support behind such proposals, putting even more demands on companies to act.

“Pressure from investors, regulators and nonprofits is making it increasingly difficult for companies to hide away from environmental and social issues,” said Julie Moret, global head of sustainable investing at Northern Trust Asset Management, which manages about $1.3 trillion.

Over the next two months, investors will vote on topics ranging from the racial impacts of companies to excessive financing of the fossil-fuel industry and fair distribution of coronavirus vaccines. While corporate executives aren’t legally obliged to carry out what investors want, about two-thirds of resolutions that get 30% to 50% support lead to companies partially or fully meeting the requests, according to research from BlackRock.

The last season of shareholder meetings saw environmental and social resolutions winning an average 33% support, up from 22% five years earlier, according to Bloomberg Intelligence.

“As never before, investor impact is being felt in the boardroom,” said Timothy Smith, who’s been filing shareholder resolutions for half a century and is a senior adviser at Boston Trust Walden Co., focusing on environmental, social and governance issues.

This year has seen a swath of new challenges surface for companies. In a rare boost for animal-rights activists, billionaire investor Carl Icahn has proposed adding new directors to the boards of McDonald’s and Kroger Co., saying the companies are mistreating animals in their supply chains. Last week, he said Wall Street’s ESG efforts may be the “biggest hypocrisy of our time” and called out investors for not paying enough attention to animal welfare.

At Meta Platforms, formerly Facebook Inc., investors are asking the social media company to report on potential civil and human rights harms caused by the metaverse—a virtual universe that blends digital technologies such as video conferencing, games and live-streaming. The proposal probably won’t pass given Chief Executive Officer Mark Zuckerberg controls the voting shares.

There are early signs, however, that investors are getting results. Apple Inc. shareholders defied management when they backed a call last month for the tech giant to undergo a civil-rights audit—the first time such a resolution has passed. And in January, a majority of Costco Wholesale Corp. shareholders supported a proposal calling on the giant retailer to set science-based targets to ensure it achieves net-zero emissions by 2050 or sooner.

And in a boost for ESG investors, the U.S. Securities and Exchange Commission has allowed more environmental and social proposals to go to vote after overturning a policy enacted under the Trump administration that made it easier for companies to exclude such resolutions from ballots. The agency has quashed 19% of resolutions that companies asked to block this season, compared with between 43% and 54% over the past four years, according to research firm Sustainable Investments Institute near Washington.

Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley asked the SEC to reject resolutions that call on banks to produce audited reports, ensuring their financing doesn’t add to new fossil-fuel supplies as required by the International Energy Agency’s so-called 2050 scenario. The SEC denied the requests.

While votes are mostly nonbinding, the outcomes depend largely on BlackRock, Vanguard Group Inc. and State Street Corp. because together they own an average 20% of every company in the S&P 500 Index, as well as sizable stakes in many other corporations worldwide.

The addition of climate-friendly directors to Exxon Mobil Corp.’s board in 2021 almost certainly wouldn't have happened without support from the three asset-management behemoths. BlackRock, the world’s largest money manager, backed about 44% of environmental and social proposals it voted on during the last voting season, up from 7.2% in 2020, according to proxy-data firm Insightia.

Backing from large asset managers was a “game changer” in 2021 and is likely to continue during this season’s meetings, said Heidi Welsh, who has been analyzing shareholder resolutions since the late 1980s and runs Sustainable Investments Institute. “There’s no sign that the big players are backing down from their view that climate change must be addressed.”

BlackRock, Vanguard and State Street’s investing unit, State Street Global Advisors, have said they will vote against directors of companies that fail to act on matters including workforce diversity and climate change. “We continue to see these issues becoming increasingly financially material,” said Ben Colton, global head of asset stewardship at State Street Global Advisors, which oversees about $4 trillion.

This year’s meetings will see at least a dozen resolutions land on ballots asking companies including Chevron Corp. and Chipotle Mexican Grill Inc. to perform racial equity or civil rights audits.

Investor requests for such reviews—which help determine whether, and how, a company’s practices, products and services contribute to racial disparities—emerged for the first time last year in the wake of racial-injustice protests that swept the U.S. in 2020 following the murder of George Floyd in Minneapolis.

While racial-audit resolutions failed to secure votes of 50% or more during last year’s meetings, they won enough support to prompt firms such as Amazon.com Inc. and State Street to agree to conduct them. JPMorgan, whose CEO Jamie Dimon last year criticized the audits for adding “bureaucracy and B.S.,” recently did an about-face and agreed to an audit of its $30 billion commitment to advance racial equity.

Another area where banks are being targeted is their unbridled financing of the world’s leading polluters. Since the Paris climate agreement was announced in late 2015, the financial industry has helped arrange about $4.2 trillion of bonds and loans for oil, gas and coal companies, according to data compiled by Bloomberg.

Goldman Sachs Group Inc. shareholders will vote on a proposal filed by the Sierra Club Foundation asking the Wall Street firm to enact measures that ensure its lending and underwriting don’t contribute to the expansion of fossil fuels. At the same time, Citigroup faces a request from Harrington Investments and Boston Common Asset Management to produce an audited report on how meeting climate goals may affect business assumptions made in regulatory filings.

Another big issue on the ballots this year is ensuring fair access to coronavirus vaccines. There’s a clear disparity between what’s been distributed to the rich and poor, said Meg Jones-Monteiro, who oversees shareholder engagement on health issues at investor group Interfaith Center on Corporate Responsibility.

Investors expect pharmaceutical companies to be more forthcoming with information since so much of the financial support for all of their vaccine development programs comes from the public, she said.

While Johnson & Johnson and Pfizer Inc. have released additional information that satisfied investors’ requests, Merck & Co. will be asked to report “the direct and indirect receipt of public financial support for development and manufacture of a therapeutic for Covid-19.” Separately, investors want Pfizer and Moderna Inc. to commission an analysis of the feasibility of transferring intellectual property and technical knowledge to allow other manufacturers to make their vaccines.

Pfizer and Moderna counter that they already provide enough information about the vaccine-related work they’re pursuing with partners around the world. For example, Moderna points to a factory it plans to build in Kenya to produce vaccines.

With criticisms increasing about the many inequities in American society, some of the country’s largest companies are under renewed fire for the exorbitant compensation they’re offering senior leaders.

Glass Lewis, a major voice on annual shareholder votes, is recommending Goldman Sachs investors vote against a pay package that puts CEO David Solomon and John Waldron, the bank’s president, in line for about $50 million in one-time bonuses. The adviser questioned whether the board’s rationale for the grants—guaranteeing leadership continuity and talent retention—warranted such large payouts.

At Coca-Cola Co., Glass Lewis cited a similar concern with the company’s $12 million consultant deal for a former general counsel who left amid a deepening controversy that started with a push for greater diversity.

If history is any guide, investors rarely support challenges to company pay, said John Chevedden, a prolific filer of shareholder resolutions. Executive compensation proposals were rejected at just 67 companies last year among all Russell 3000 advisory votes.

Still, Chevedden wants AES Corp. and Spirit AeroSystems Holdings Inc. to seek shareholder approval for the so-called termination pay packages that executives receive when they lose their jobs for non-disciplinary reasons such as a merger or acquisition. He won a rare victory on that topic last year at FedEx Corp.

Put it all together and it’s almost certainly going to be a lively proxy season, according to Rob Du Boff, a senior ESG analyst at Bloomberg Intelligence.

“With asset managers looking to bolster their ESG credibility, everyone feels empowered these days to flex their voting muscles,” he said.

Update: Language in the chart of annual shareholder resolutions related to social & environmental issues was updated to clarify that the data include only proposals that appeared in proxies of Russell 3000 companies.