With this year’s proxy season in the rearview mirror, EY’s Center for Board Matters analyzed voting trends among Fortune 100 company shareholders to see what could be gleaned about investor sentiment. It found that investors are getting much choosier about the environmental, social, and governance (ESG) issues they’re willing to support, even as the category continues to attract more shareholder proposals.

This year, shareholders submitted 296 proposals that fell under the broad umbrella of ESG, according to EY’s post-season report published earlier this month. That was slightly higher than last year’s total of 289 ESG propositions put forward at Fortune 100 companies, which itself represented a spike compared to 2021.

However, investor backing for ESG bids plummeted this proxy season. In 2022, 36% of ESG recommendations won approval from 50% or more of voters. This year, that was true for only 7% of such proposals. The share of ESG bids to win endorsement from at least 30% of voters—a key threshold for measuring investor approval—also dropped.    

Is the anti-ESG movement the elephant in the room here? Was it responsible for this year’s voting outcomes?

Possibly, but to a limited degree, according to EY’s analysts. Among Fortune 100 companies, only 2% of anti-ESG proposals secured backing (more than 50% approval) this proxy season. However, the report authors also acknowledged that companies and investors are “balancing opposing pressures and increased scrutiny from different stakeholders” related to ESG matters. Against a highly polarized political backdrop, in other words, some investors are thinking twice about which causes they can champion without inviting a backlash.  

Climate-focused proposals, which represented about one-third of ESG topics, were no exception to the overall trend. Even as we live through the hottest month in recorded history, shareholders supported only 22% of this year’s environment-related proposals, compared to 34% last year.

Kris Pederson, who leads EY’s Center for Board Matters and one of the authors of the report, says investors still view sustainability as critical to a company’s long-term survival. But they want targets to be closely aligned with a firm’s business strategy. Beverage companies certainly need to have water protection on their radar, for example, says Pederson, who adds that investors are asking: “What’s material to the business?”

Many investors also withheld support for climate proposals because they believe companies are already making progress toward their stated goals, according to Pederson. And any proposal found to be overprescriptive was more likely to be rejected. For example, proposals that focused on cutting emissions across a company’s supply chain found a warmer reception than those that set specific deadlines for companies to phase out of fossil fuel projects, the report states. (Andrew Behar, CEO of leading shareholder activist group As You Sow, has also acknowledged that “tougher” proposals were a hard sell this year.)

It also matters who was behind this year’s climate proposals, according to Pederson—investors were asking whether a proposal’s sponsor had the best interest of long-term shareholders in mind. Shareholder activists who blanketed companies with single-issue propositions that were not tailored to suit a company’s goals saw their suggestions essentially “thrown out,” Pederson reports.

See the full report, which also unpacks voting patterns for executive pay packages and director reappointments, here.

Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan

Noted

“Based on what’s been put out for public comment and a very rapid study I’ve been able to do so far, I’m a bit disappointed.”

—Larry Summers, former Treasury Secretary, appeared on Bloomberg TV to sound off about 13 new merger guidelines proposed last week by the Justice Department and the Federal Trade Commission. Summers sees the stringent guidelines as part of the FTC's “war on business.”

On the Agenda

👓  “Google’s world-class A.I. team had long been the envy of the tech community,” writes Fortune’s Jeremy Kahn in his enthralling feature detailing how the tech giant now finds itself playing catch-up in the era of generative A.I. One lesson for boards: Don’t get too comfortable or complacent, no matter how reliable your “money-printing machine” (as one former employee called Google’s Ads business) seems to be.

🎧  Cynthia Jamison, a retired “turnaround CFO” who now sits on several public company boards, recently joined Evan Epstein’s Boardroom Governance podcast. She opined on ESG trends, suggesting that environmental and social goals are sacrificed during market volatility, and shared smart advice for boards concerned about an economic downturn.

📖  Corporate directors might want to bookmark the aforementioned draft of merger guidelines for U.S. companies published last week by the FTC and Justice Department. The full text can be found here. 

In Brief

- A string of recent departures by high-profile DEI leaders has raised a question: Is the golden era of the chief diversity officer over? The Wall Street Journal looks at the factors that made CDOs more vulnerable to layoffs than their HR counterparts over the past year.

- Bluebell Capital Partners, the London-based activist investor that recently ran a successful campaign at Danone, has taken a stake in Kering, a conglomerate that owns luxury fashion brands Gucci, Alexander McQueen, and others. Bluebell is reportedly pushing the company to merge with luxury-goods holding company Richemont, which owns Cartier.

- BlackRock recently appointed Amin Nasser, CEO of Saudi Aramco, to its board as an independent director. The move didn’t go over well with New York City Comptroller Brad Lander, who slammed the world’s largest asset manager for linking itself to the head of the world’s largest oil producer. BlackRock, a company famous for previously insisting that companies take aggressive action to curb climate change, is now “climate conflicted,” Lander said.

- During periods of corporate upheaval, some anxious employees might deal with their uncertainty by following a trusted manager. But other reactions could include fighting back, taking flight for a new job, or actively harming the company. Here’s what leaders need to know about the “five Fs” of employee stress responses.

- The SEC won’t just be examining A.I. for its impact on markets; it will also be using A.I. to make the agency more productive, according to a recent speech by Gary Gensler, the agency’s chair.

The Long Read

During the pandemic, talent management issues zoomed to the top of corporate boards’ priorities, with many firms choosing to let go of staff during 2020’s economic downturn only to regret that decision when demand rebounded.

In a new feature, Fortune’s Geoff Colvin reports on a U.S. company that was never in danger of being ensnared in that trap, because layoffs are simply not part of its toolbox. Lincoln Electric, an Ohio-based maker of welding equipment, hasn’t laid off anyone in 70 years. “Lincoln avoids layoffs by following a unique, decades-old system that requires sobering sacrifices by employees and the company, each making promises to the other that require mutual trust,” Colvin explains. Read his in-depth piece examining how Lincoln’s contract with employees works, and what the company and its workers have gained from it in good times and bad, here.