An interview with Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR).

What do you feel were the standout trends of the 2023 proxy season?

Despite all of the anti-ESG rhetoric and engagements, investors remained undeterred in advocating for enhanced ESG commitments on the part of issuers. A large number of ESG-related resolutions were filed and about a third of ICCR-member resolutions filed for 2023 were withdrawn in exchange for substantive corporate commitments.

Indeed, support for ESG proposals was down this season, which is primarily due to retrenchment by some of the bigger asset managers, seemingly in response to political pressure from the right. But what we did see is that support for these resolutions was still strong amongst the broader range of institutional investors.

Some have argued that ESG proposals have become more prescriptive, while opponents of this viewpoint suggest proposals are better crafted than those seen in previous years. What is your view?

We don’t feel like the excuse used by the large asset managers for their reduced support for proposals, that too many proposals are “overly prescriptive”, is necessarily backed up by the evidence. Most ESG-related resolutions are carefully crafted and similar to proposals that were supported in previous years.

One such example of this concerns proposals calling for racial equity audits. There was a big drop off in support by the big asset managers when it came to these proposals this year, although the proposal requests were largely the same as those subject to a vote a year prior.

One thing that is troubling to us when examining this decline in support by leading asset managers, is that as universal owners across the markets, their stewardship should be focused on broader “beta”, or systemic risk to the economy, rather than specifically on individual companies’ enterprise value. Otherwise, they ignore negative externalities by companies that may actually enhance short-term profit for individual companies, but create systemic risk for the entire portfolio. We fail to see how declining votes on such critical systemic issues as climate risk and racial equity are consistent with the systemic stewardship that their fiduciary duty to beneficiaries should require.

The topic of human rights has gained notable attention this season, including proposals concerning freedom of association, human rights reporting and unionization. What do you feel has prompted this?

As you note, freedom of association proposals are advancing and performing well. That was a tough investor conversation a few years ago, but now there is more organizing happening and it’s a higher- profile issue, as we have seen recently for example at Starbucks, Amazon and U.S. automakers. Perhaps more importantly, the painful lessons of the pandemic brought a growing realization to investors and companies that the way that a company treats its workforce is fundamentally material to the long-term value and sustainability of the company. This has enabled a broad range of investor conversations with companies about worker rights, around wages, benefits, and worker health and safety – in addition to freedom of association – to advance.

Investors are looking to companies to show their commitment to workers as a way to create organizational stability and a competitive edge and to build long-term value. Giving workers the space to organize should be a fundamental right. Human rights risks are also gaining prominence among investors in part due to all the conflicts raging in the world right now – in Ukraine, Israel/Palestine and so many other regions. This has prompted a growing understanding by both investors and companies that they need to exercise extreme caution and careful human rights due diligence when doing business in conflict-affected areas where human rights risks are dramatically heightened.

What have you learned from engagements concerning ESG this season?

One lesson is that the dynamic hasn’t actually changed that much, which is notable given all the noise from political opponents about “woke capitalism.” The train has left the station on ESG and companies now fundamentally understand that they need to, for example, grapple with climate risk and incorporate sound policies to diversify their boards and management and adopt policies that will ensure they are able to retain their workforce. Companies know that this is the way forward and there’s no going back.

What has changed I think is that, due to political pressure from opponents of ESG, issuers are much less willing to be public about their ESG-related commitments. So, while issuers are still moving forward on critical ESG issues, they don’t want to be public about the steps they are taking to address ESG-related risks. Unfortunately, this does make it harder to move sectors forward as a whole. We have been urging companies to be public about their ESG progress as it’s great for building a positive brand and helps move competitors along.

What are ICCR’s engagement priorities for 2024?

We recently launched a statement in support of a living wage which received the support of investors representing approximately $4.5 trillion in assets. This is just the beginning of a broader engagement on living wage, especially with industries where lower-wage workers are especially prevalent, such as retail and hospitality.

We are also doing a lot of work on climate lobbying across all sectors. Where companies could be perceived as setting up roadblocks to prevent progress on climate, we are pushing them to support initiatives that are climate positive. This is part of broader efforts to press companies to align their political spending and lobbying with their core corporate values.

Similarly, we are engaging with the utilities sector on the Just Transition, ensuring that they are in dialogue with workers and environmental justice groups. We are also focused on engaging the tech sector on incorporating meaningful human rights due diligence; with the pharma sector on access and affordability of essential medicines; and across sectors to press for equitable supply chain policies and practices.