Are there too many ESG shareholder proposals?

Here’s a note from Lindsay Stewart at Morningstar:

Are there too many ESG shareholder proposals? Well… it’s complicated, so we’ve brought back the blocks to help explain it all. Here’s a summary article on our latest research (and here’s the full study). Our study looks at key shareholder resolutions in the U.S. in the 2023 proxy year, compared with the three previous proxy years.

Here, we define key resolutions as environmental and social resolutions with at least 40% support from independent shareholders. Looking at this subset helps us compare resolutions that a broad range of shareholders considers to be above a minimum standard of quality – a topic much debated this season.

As shown on the graphic below, there was a much larger volume of E&S resolutions in 2023 compared with previous years, but a much smaller number of key resolutions. In the previous three proxy years, around 35-40% of E&S resolutions were well supported enough to be key resolutions. This year, only 53 (16%) out of 337 proposals made the cut.

In particular, BlackRock and Vanguard have recently commented on resolution quality, amid a growing number of what they see as “overly prescriptive” or “redundant” proposals. The fall in the proportion of key resolutions this year indicates that this view may be widely held among large asset managers in the U.S. market.

But our initial research also suggests that within the subset of well-supported key resolutions, BlackRock and Vanguard’s views are becoming less accommodating relative to the market. More to come on this in October.