IN-DEPTH: Europe sees tripling in support for E&S demands
Support for environmental and social (E&S) shareholder proposals in Europe more than tripled in the past three years, with demands for enhanced ESG disclosure and target-setting seeing greater success outside of the U.K., in response to recent regulatory developments.
As of May 28, 2024, the 17 E&S proposals subject to a vote at European companies have secured 19.3% average support, compared to 30 winning 11.5% support throughout 2022 and 40 receiving 19.1% average support throughout 2023, according to Diligent Market Intelligence Voting data. One such proposal has already secured majority support this year.
“The rising support for ESG proposals in Europe as a whole is based on the continued understanding by investors about how ESG topics can be material to the long-term business success and financial performance of companies,” Emmanuelle Palikuca, head of sustainability advisory at Alliance Advisors, told DMI.
Human capital gains traction
The European Commission’s Corporate Sustainability Reporting Directive (CSRD), announced in 2023, seeks to mandate reporting of human capital and sustainability processes and policies for all companies in EU-regulated markets with upwards of 500 employees.
Cognizant of such looming reporting obligations, investors have advanced demands for enhanced human capital and sustainability-related disclosures, which are finding success - particularly in countries such as Norway, France and Denmark.
The five human rights-related shareholder proposals subject to a vote at European companies in both 2023 and the first five months of 2024 all targeted Danish companies. In 2023, average support for these proposals increased by 43 percentage points to 51.4%, up from 8.1% a year prior.
Danish pension funds AkademikerPension and LD Fonde have had success with their proposals calling on companies to identify human rights-related financial risks. One such proposal secured 100% support from investors at Danish industrial company FLSmidth’s March 2023 annual meeting.
This year, a proposal submitted by the duo targeting Danish shipping company DSV, seeking annual reporting on the company’s alignment with the United Nations Guiding Principles on Business and Human Rights (UNGPs) and CSRD, secured 98.6% support after being backed by management.
Stichting Pensioenfonds Medisch Specialisten (SPMS) supported the FLSmidth proposal, noting in its voting rationale that the company faces material human rights risks and “good practice includes developing a clear human rights policy or code of practice, along with a narrative on how impacts are monitored and effectively mitigated.”
"For years, we have been in a dialogue with DSV about its approach towards [human capital], even though DSV's most recent reporting has included more information than previously available," Anders Schelde, chief financial officer at AkademikerPension, said at DSV's annual meeting. "DSV already has a policy, but transparency of how DSV carries out its policy efficiently in its business requires improvement."
BlackRock ranked among the investors to support the proposal, noting in its rationale that "greater disclosure" is needed to help investors understand related risks and opportunities at the company.
Climate change
Proposals concerning emissions reductions are also seeing success at European companies outside of the U.K. In the first five months of 2024, all seven climate change resolutions have been filed at companies in the energy and financial services sectors. With the exception of one proposal, all were voted on at non-U.K. companies.
A request for Equinor to align its strategy and capex plans with the Paris Agreement secured support from 32% of votes cast at the Norwegian energy giant's May 14 annual meeting, when accounting for non-state votes only. A request for Shell to strengthen its Scope 3 emissions reduction target also secured 18.6% support.
“A part of this increase [in engagement] is the factor that the sector has been so hesitant to transition,” Felix Nagrawala, research manager at ShareAction, told DMI in an interview.
In Switzerland, engagements are also bearing fruit. A proposal asking Chubb to disclose its Scope 3 emissions secured 28.3% support, compared to 28.9% a year prior.
“That understanding of how companies need to have a strong strategy around sustainability risks and related opportunities is really driving a lot of support for proposals, I think we’re seeing that reflected in the updated guidelines that investors are releasing related to proxy voting,” Palikuca said.
A more focused approach
Hal Dewdney, ESG consultant at Georgeson, believes fewer E&S proposals will be subject to a vote in 2024 as investors focus their efforts to select targets where their engagements can be most impactful.
“The E&S proposals in 2024 will be more targeted, as companies continue to contend with diverse shareholder views on these topics,” Dewdney told DMI.
With CSRD setting out to provide a clear, actionable path forward for corporate ESG reporting, it's expected that many investors may focus on companies where disclosures are misaligned or falling short of regulatory requirements. Engagements may request enhanced disclosure of Scope 1, 2 and 3 emissions and related targets, or reporting on corporate supply chain due diligence.
“Companies deemed to be laggards relative to their peers in this area may receive feedback from investors during direct and collaborative engagements" Dewdney said. "Even if a company does not receive E&S shareholder proposals this season, it should keep investors informed of its progress on environmental and social activities and its plans, in order to prevent shareholders from taking escalation steps.”
