Against a backdrop of rising inflation, cost-of-living concerns and rising anti-ESG sentiment, the 2023 proxy season saw many institutional investors shift their focus toward financials and governance reforms and away from environmental and social concerns.

A surge in environmental and social proposals, which made more specific asks of companies compared to previous years, also contributed toward declining support levels compared to the highs of 2021 and 2022. Just 2.5% of environmental and social proposals won majority support in the 2023 season, compared to 11.4% a season prior, according to Diligent Market Intelligence’s (DMI) Voting data.

“The asset management industry is now under a microscope in a new way,” John Hoeppner, head of U.S. stewardship and sustainable investments at Legal & General Investment Management, told DMI. “In any engagement, voting rationale is being reviewed both by those that are supportive of your goal and thesis and those that are antagonistic to any decisions one could make. As a result, I do think folks could be less willing to support non-status quo proposals than in the past.”

As governance proposals gained traction, shareholders sought assurance that companies had robust stewardship processes and policies in place to weather risks brought on by market volatility.

Below, DMI examines how investor voting on ESG has evolved in the S&P 500 as shareholders focus on portfolio companies’ long-term financial interests.

Governance support holds steady

Just under one-quarter of the 60 general governance shareholder proposals subject to a vote at S&P 500-listed companies won majority support in the 2023 proxy season, up from 15.9% a season prior.

Average support also held steady at 35.8%, compared to 39.6% in the 2022 season, despite the number of governance proposals making their way onto ballots almost halving in 2023.

Eight proposals which won more than 50% support sought the adoption of simple majority votes, while four sought amendments to special meeting bylaws.

Market tensions and rising inflation are seen by many in the industry as some of the key drivers behind the steady support levels secured by such proposals, with shareholders keen to see companies establish robust policies and practices that enable investors to hold companies to account.

A proposal asking Duke Energy to implement a simple majority vote won 79% support at the company’s May 4 annual meeting, with the proponent describing Duke’s supermajority voting requirements as “undemocratic.” BlackRock, State Street Corp. and abrdn rank among the investors to support the proposal.

Similarly, a request for Mosaic Co. to reduce the ownership threshold required to call a special meeting won 50.5% support, despite being opposed by management. In its voting rationale, Pensionskassernes Administration revealed it supported the proposal for promoting “appropriate accountability.”

“In our engagements with companies, one thing remains clear: sound corporate governance has never been more important for companies to successfully navigate strategic questions,” BlackRock’s proxy season review reads. “Our discussions, therefore, continued to center on core governance practices that align with our clients’ long-term financial interests.”

Support dips for diversity reporting demands

Diversity and employment proposals, the majority of which ask issuers to commission racial equity audits and/or report on board diversity, won 21.4% average support in the S&P 500 in the 2023 season, down from 30% a season prior. The rise of anti-ESG proposals is a likely factor in declining average support. For the first time this season, 17 proposals asking companies to rescind their commitments to commission racial equity audits and to conduct cost-benefit analyses of their DEI processes and policies also featured on ballots, winning 1.5% average support.

3.4% of investors to vote on diversity and employment proposals supported upwards of 80% of resolutions in the 2023 season, compared to 6.3% in the 2022 season. More than one-fifth of investors supported fewer than 10% of these proposals, up from 16.6% a season prior.

Of the three diversity and employment proposals that did secure majority support in the 2023 season, two sought reporting on diversity, equity and inclusion (DEI) efforts while one at Dollar General sought a third-party audit of worker safety.

The Dollar General proposal followed media attention on financial penalties levied against the company by the Occupational Safety and Health Administration (OSHA). State Street Corp. and BMO Global Asset Management rank among investors to support the proposal, with BMO citing the need for enhanced disclosure, given the “penalties and attention the company has received for its health and safety track record.”

Support dampens for climate proposals

Meanwhile, average support for S&P 500 climate change proposals decreased to 20.9% in the 2023 proxy season, compared to 35.7% a season prior.

Core support for climate proposals remains robust, however. 12.4% of investors that voted on S&P 500 climate change proposals in the 2023 season supported upwards of 80% of these resolutions, compared to 15.4% in the 2022 season. And although some asset managers linked declining levels of support to increasingly prescriptive proposals, not all investors are in agreement.

“There has been a concerning refrain from some institutional investors that shareholder proposals were too prescriptive this year, but we haven’t seen it,” Andrea Ranger, shareholder advocate at Green Century Capital Management, told DMI in an interview. “Many so-called prescriptive proposals filed in the 2022 season received notable support. But when the same proposals were filed again in 2023, their prescriptiveness was suddenly held against them. What changed?”

Just one climate change proposal won majority support this season, asking Coterra Energy to report on its methane emissions disclosure. The proposal secured 74.4% support despite being opposed by management.

In a voting bulletin, Neuberger Berman revealed it supported the proposal because the topic presented a material risk and the company “could benefit from further action and disclosure that would be more aligned with peers and industry efforts.”