Shareholder proposals on sustainability

Abstract

Voting on shareholder proposals allows investors to exercise ownership rights by holding the board accountable and steering companies in important decisions. In several markets an increasing number of proposals focus on the environmental and social aspects of companies’ activities. Many of these shareholder proposals are well-founded initiatives aimed at improving the target company’s sustainability and financial performance. However, some proposals focus on tangential issues or attempt to micro-manage company boards. This heterogeneity means that there is no “one-size-fits-all” approach that asset managers can apply systematically when voting for or against shareholder proposals on sustainability. We explore the evolving landscape of environmental and social shareholder proposals and review available evidence on how effective these proposals are in creating value and promoting responsible business practices at companies. We discuss how asset managers can best establish voting processes that allow them to vote on sustainability shareholder proposals in a way that is consistent with their risk and return objectives. We recommend an analytical approach focused on materiality, limited prescriptiveness and consideration of company context.