Spring marks the beginning of new activities each year such as gardening and baseball. For investors, spring is also the start of “proxy season” – a period when companies hold annual meetings for shareholders to review business activities, as well as to vote on important proposals. Since not all shareowners can attend or will have the time to review proposals, typically a proxy representative is assigned to vote on their behalf, for instance an investment advisor.
When discussing sustainable and socially responsible impact investing, often the conversation focuses on which firms to invest in (or not) based on environmental, social, or corporate governance criteria, also referred to as ESG in the impact investment community. However, annual meetings provide the chance to have more active discourse with a corporation since, for publicly traded companies, proxy statements are a matter of public record. If concerned investors want to engage a firm’s management team on issues such as responsible packaging in the supply chain or gender pay equity, but have trouble being heard, the annual meeting is an opportunity to bring the discussion to an open forum by filing a resolution on the matter.
...this would require an investor to own more than a billion dollars of stock in the company, rendering shareholder engagement almost unattainable.
Proxy Democracy is a nonprofit that catalogs shareholder proposals for the public. The site tracks resolutions filed at companies, as well as how mutual funds vote on these issues. Another resource on shareholder advocacy is a collaboration of sustainability investors and nonprofits which compiles upcoming resolutions into a report called Proxy Preview. As noted in the latest edition, 370 resolutions on ESG issues were filed in 2016 with approximately 430 slated for the current year. The report also shows the breadth and depth of advocacy in areas such as accounting for carbon emissions, diversity on the board of directors, and corporate political spending.
Unfortunately, shareholder advocacy in the United States might face a wholesale change. Congressional representatives put forth a bill this year that would require an investor to hold one percent of corporate stock to file a resolution. For many corporations on the S&P 500 index such as Google, this would require an investor to own more than a billion dollars of stock in the company, rendering shareholder engagement almost unattainable.
According to US SIF Foundation, $2.56 trillion in US assets held by 225 institutional investors or money managers filed shareholder resolutions on environmental, social, and corporate governance issues between 2014 and 2016. Considering that not all shareholder engagements turn into a resolution in the proxy statement, corporate-investor dialogue on ESG has a significant presence in the modern world. Taking away proxy access would remove a key communication tool for shareowners with companies that has improved business practices over the years, so investors will be working vigilantly to keep it on the table.
As spring cleaning commences in households everywhere, individuals will be meeting with their advisor to review finances. We hope sustainability-oriented investors take the time to ask about the impact their finances have and what shareholder engagement issues may be taking place in companies they invest in.
UPDATE: Impact Investors submitted letters to House Representatives Jared Huffman and Scott H. Peters before the House voted on the Financial CHOICE Act on Thursday, June 08.
All investing, including sustainable and socially responsible investing, involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.