Corporate Impact | March 20, 2024

This proxy season, shareholders will have their say on AI, biodiversity and corporate political activity 

Louie Woodall
Guest Author

Louie Woodall

Ethical guidelines for artificial intelligence and biodiversity protections for deep sea mining are among the newcomers among the environmental and social issues on the ballot this annual general meeting season.

Shareholders will also have the chance to again vote on long-running proposals on climate change, corporate political influence, diversity, decent work conditions, and human rights.

Shareholders will decide whether to ask Meta to consider banning political ads ahead of the US general election to guard against divisiveness and misinformation. Shareholder groups have pivoted on bank climate disclosure proposals to focus on their ratio of clean energy to fossil fuel funding – another new development.

The backlash against environmental, social and governance, or ESG, investing has made the debate over the scope and scale of shareholder proposals more rancorous than ever. This year has already seen three lawsuits aimed at stripping the US Securities and Exchange Commission of the power to compel climate risk disclosure (see, “New SEC rules may be just enough to push climate action from disclosure to accounting”). The Republican-controlled House Judiciary Committee has opened 14 antitrust investigations of banks, proxy advisors, asset managers and non-profits related to their climate and social efforts.

“This anti-ESG crusade is a well-funded and centrally orchestrated attempt to maintain the status quo against prevailing market forces,” said Andy Behar of As You Sow, in presenting the shareholder advocacy group’s annual Proxy Preview report. “The handful of extremists who are trying to ignore the realities of a changed investing landscape are on the wrong side of history.”

This is the second proxy season since the Supreme Court’s overturning of Roe v. Wade. Several states have implemented de facto abortion bans since then, and legal challenges are pending over the widely used abortion and miscarriage care drug mifepristone.

A dozen proposals have been filed on reproductive rights, compared with 25 in 2023. Proponents are choosing to keep the details out of the public eye: of the dozen proposals, only three were included in the Proxy Preview.

One is a resubmitted proposal to PepsiCo, asking it to disclose within the year “any known and potential risks and costs to the company caused by enacted or proposed state policies severely restricting reproductive rights, and detailing any strategies beyond litigation and legal compliance that the company may deploy to minimize or mitigate these risks.”

Climate financing ratio

Environmental issues make up the lion’s share of this year’s shareholder resolutions, continuing a long-running trend. Of the 527 ESG proposals analyzed by As You Sow, the Sustainable Investments Institute, and Proxy Impact, 20% relate to climate change, down only slightly from 23% last year. Proposals range from demands for better climate risk disclosures to alignment of corporate lobbying with Paris Climate goals. More proposals are asking companies to develop and publish climate transition plans.

“Climate change continues to be the overarching issue that shareholders are concerned about,” says Green Century Capital Management’s Andrea Ranger.

“We continue to ask and others continue to ask for companies to set science based targets through the Science Based Targets initiative, preferably.”

Still, the absolute number of climate proposals is down, and support for these at shareholder meetings dropped sharply between 2021 and 2023. The anti-ESG backlash takes part of the blame. Uncertainty on the final shape of the SEC’s new climate risk disclosure rule, may also have encouraged some investors to stay out of the fray.

Assuming the SEC rule overcomes legal challenges and comes into force, climate proposals from shareholders may diminish – though polluting firms will probably continue to be asked to make detailed emissions reports.

“Everyone is suing the SEC. The rules won’t take effect for a while,” says Proxy Impact’s Michael Passoff. “So, for the next few years at least its status quo.” But there is still plenty of room for engagement. The final SEC rule omitted disclosure requirements for so-called Scope 3 emissions – those created upstream in the supply chain and downstream by customers. “Nobody’s going to let the biggest Scope 3 emitters off the hook,” Passoff said.

Another shift taking place concerns banks’ climate disclosures. New York City Comptroller Brad Lander is promoting a new kind of climate finance metric, the “Clean Energy Supply Financing Ratio”, which shows the proportion of total bank financing going to clean and low-carbon energy versus fossil fuel projects (see, “Another election, another flurry of climate activity from New York City’s pension plans”). 

Lander, who oversees New York City’s public pension funds, scored an early victory when JP Morgan committed to disclose this ratio. Proposals filed with Bank of America, Citigroup, Goldman Sachs, Morgan Stanely, and Royal Bank of Canada are still outstanding.

Deep sea mining

Biodiversity and deforestation proposals have been filed at Home Depot, International Paper, Target, and Tyson Foods. “It’ll be really interesting to see how this evolves, because so many companies are nature-dependent. [Nature] is much closer to protecting their own business,” says Passoff.

As You Sow launched a dedicated biodiversity program to address increasing concerns about systemic risks to nature engendered by corporate activity. An initial focus is deep sea mining, which has intensified as electric vehicle and battery storage companies scramble for the precious minerals needed to build their products. The industry’s supporters argue strip mining the seabed is less harmful than terrestrial mining; a growing body of research suggests otherwise.

To combat the biodiversity risks posed by deep sea mining, As You Sow filed proposals asking General Motors to publicly disclose its use-policies for deep sea mining minerals, and at Tesla, pressing for a moratorium on the practice. Automakers Volvo and BMW have already come out against the industry.

Investors expect more nature- and biodiversity-related proposals to come up in the wake of the reporting framework launched by the Taskforce on Nature-related Financial Disclosures. 

“Although climate change still dominates environmental shareholder proposals, we hope to see the momentum on nature-related shareholder proposals continue to build as the disclosure, data and understanding on the topic increases across the industry,” says Sonya Likhtman of Federated Hermes, the $758 billion asset manager.

Artificial Intelligence and election security

The generative AI hype has pumped the stock valuations of Nvidia, Meta, Microsoft, and Alphabet, among other tech giants. However, the rapid rollout of the technology has brought new risks to corporations and shareholders, while adding fuel to the flames of other, long-standing issues.

Investors want to see companies take action. Nearly a dozen proposals have been filed at tech and media companies on AI this year. Of these, seven ask for reports on the ethical guidelines companies use when deploying AI. 

“You need something to hold the company to. If they don’t already have it, you ask for a policy, and once they make that then you can try and hold them to it. It’s the logical first ask,” says Passoff.

Shareholders at Meta and Alphabet have also filed proposals asking about AI-generated misinformation risks and human rights impacts.

“We can expect more, but there are only so many companies involved,” said Passoff. He said the number of proposals grow as more AI companies emerge. “Definitely it’s a new issue. Definitely it’s going to raise a lot of concerns.”

More than four billion people across 40 countries are heading to the polls this year, making cybersecurity and election security a central concern in both developing and developed countries.

The upcoming US general election is a particular flashpoint. As You Sow has introduced a proposal asking Meta to curtail political advertising in the runup to this contest to “combat divisiveness and misinformation.” This follows a spate of general content management proposals filed at the Facebook parent company in recent years. One concerning elections won 19.5% support in 2021, while another on political ads garnered 12.7% in 2020.

Proposals targeting corporate election contributions, political lobbying, and discrepancies between stated policies and the recipients of political contributions are also in evidence this year, making up 17% of all ESG proposals, the same percentage as last year.

ESG headwinds

ESG-focused investors continue to face challenges amid an emboldened anti-ESG movement and the public retreat of major institutions from climate-related financial alliances.

Earlier this year, JPMorgan Asset Management and State Street Global Advisors quit the Climate Action 100+ coalition, while BlackRock shifted its participation to its international unit, leading to questions over whether they would continue to back climate-focused proposals.

The withdrawal of large asset managers from ESG proxy votes is “a frustrating trend,” said Greta Fearman of Cardano, the UK-based pension advisor.  “We engage collaboratively, because that really helps us with leverage, and we haven’t noticed [the ESG backlash] impacting our ability to have constructive dialogues with companies,” she says.

Another barrier to shareholder activism are corporations themselves. ExxonMobil made headlines in February by suing Arjuna Capital and Follow This, a Dutch investor group, to block their filing of a proposal asking the oil major to set Scope 3 emissions targets. Even after the proposal was withdrawn, ExxonMobil pushed a federal court to proceed with the litigation.

The oil major’s aggressiveness could have a chilling effect on climate-related proposals going forward, though investors aren’t taking the threat lying down. In February, the Interfaith Center on Corporate Responsibility, a coalition of over 300 investors, sent a letter to the ExxonMobil board, arguing that the suit represents “a serious threat to shareholder rights” and “a clear attempt to undermine the SEC’s authority and its credibility” on managing proxy disputes.

“This is a classic example of a SLAPP suit,” for Strategic Lawsuit Against Public Participation. says Passoff. “It’s just to harass proponents and try to intimidate them.”

He called Exxon’s aggressive move an outlier that won’t hold up in court. 

“Nobody’s going to stop asking questions on climate change.”