Investor stewardship in 2024: What asset managers and IR professionals need to know
As ESG becomes increasingly entwined with business risk, the pressure is on for companies to provide timely disclosures that demonstrate effective ESG oversight.
Investor relations (IR) professionals need to build shareholder confidence in their company’s strategy and sustainability. Meanwhile, asset managers want to know that the businesses they’re funding have a firm handle on risk, opportunity and the future.
The 2023 Investor Stewardship report by Diligent Market Intelligence (DMI) dives deep into this evolving dance, including key areas where greater collaboration is needed to mitigate risks and ensure alignment.
Here are some key takeaways from the report.
ESG oversight is moving beyond proposals and promises
Since 2020, “say on climate” has encouraged companies to provide their shareholders with environmental plan proposals for review and, ideally, support. But increasingly, these proposals aren’t enough.
In 2023, 33 say-on-climate proposals went to a vote. Of those, 12.2% received underwhelming (under 80%) support, up from 10.3% in 2022 and zero in 2021. More and more, investors want to see action, not promises.
As Kirsten Snow Spalding, Vice President of the Ceres Investor Network, told DMI in a recent interview, “Investors are looking for companies to publish comprehensive climate transition action plans that provide more information about the company’s climate lobbying practices, capital expenditure alignment, climate accounting and their efforts that support a just transition as we move towards a more sustainable economy.”
As expectations rise for climate transitions, shareholders are finding new ways to express their thoughts on the matter. One way is by voting against directors. In 2022, State Street began casting such votes for companies that failed to provide TFCD-aligned disclosures.
Investors want to know about workforce policies and human rights
The 2020s have brought an intersection of social issues and business risk, with corporate leaders navigating a pandemic, political polarization, movements related to DEI, the rise of ESG funds and more. IR teams found shareholders asking tougher questions and demanding greater transparency, adding more and more time-consuming tasks to their already full schedules.
As we enter the middle part of the decade, ESG scrutiny has been evolving. Investors today recognize the business risk of poor recruitment and retention, both of which have been exacerbated by inflation and cost-of-living concerns. Meanwhile, the business value of human rights due diligence is also a focus, particularly as new regulations emerge in this area.
Freedom of association proposals, which seek to guarantee employees’ right to form trade unions, rank among the best-performing ESG proposals of 2023. Despite declining support for environmental and social proposals overall, proposals for ESG reporting have also been gaining traction. PJT Camberview Director Sheena VanLeuve called it “an indicator that investors felt the social risks they addressed were tied to financial value.”
In 2022, two proposals asked Smith & Wesson Brands and Axon Enterprises to adopt and amend their human rights policies. In 2023, a proposal urging Boeing to report unadjusted median and adjusted pay gaps across race and gender won 47.4% support.
“A lot of companies have ramped up their governance of human rights issues, DEI and freedom of association over the last few years,” Marc Lindsay, managing partner, director of research at Sustainable Governance Partners, told DMI. “Investors are giving companies credit for enhancing their disclosure or governance practices.”
Engagement pays off (except for one-time equity awards)
For the first proxy season in five years, support for say-on-pay proposals has increased.
“You’re seeing the fruits of the labor of company engagements,” Brian Valerio, Senior Vice President at Alliance Advisors, told DMI. “Companies have been engaging with shareholders to understand their compensation philosophies and craft plans that align with company needs, but also drive value for investors.”
Concurrently, there’s been a shift away from significant one-time equity awards. Is it a cause, effect or both? In any case, “In 2023, issuers seemed to be taking stock of shareholder claims that executive pay should be more closely aligned with performance and shareholder experiences,” DMI’s Investor Stewardship report declared.
Pick your words with care
For all parties — investors, issuers and asset managers — accurate and actionable language in ESG requests and disclosures is more important than ever.
Is a product, service or fund really “green”? Define its climate credentials too loosely at your peril. DMI’s report noted how both U.S. and European policymakers have been taking steps to prevent asset managers from making misleading claims.
Be careful with political and social statements as well. Speakers at Diligent’s 2023 user conference noted how anti-ESG activists are warning companies to steer clear of remarks that could potentially alienate key stakeholders. Refocus on the financials instead.
Finally, one way to encourage stronger ESG oversight may be to offer less advice, not more.
“The [shareholder] proposals that got higher support this year were carefully crafted by the proponent to be focused solely on disclosure and not on being prescriptive around company strategy,” Marc Lindsay of Sustainable Governance Partners told DMI.
The right tools for evolving trends
As DMI’s Investor Stewardship report highlights, effective and transparent ESG oversight remains a top priority for shareholders.
Although investors are no longer reliably supporting environmental proposals, they continue to demand action around human rights and employee welfare — and they want more than just talk. They want detailed disclosures that outline what companies are actually doing to back up their ESG commitments.
Amidst this convergence of trends, technology tools have emerged to ease the burden: from digital board reporting platforms that support transparency and better decision-making, to automation that accelerates and streamlines manual processes for ESG teams.
Learn how Diligent can help you amp up your engagement with these tools and more in the year ahead. Schedule a demo today to get started, and download the full Investor Stewardship report for even more investor insights.
