Dive Brief:

• Shareholders during the 2021 proxy season showed record levels of support for proposals on environmental and social topics such as climate change, lobbying spending, and diversity, equity and inclusion (DE&I), EY said in a study of proxy disclosure data from Fortune 100 companies.

• During shareholder meetings through June 30, 20% of environmental and social shareholder proposals that went to a vote received more than 50% support, compared with 12% last year and 3% in 2016, EY said.

• “Investors are growing more urgent in their demands that companies address [environmental, social and governance] ESG risks and opportunities. Companies are responding,” EY said. “This year saw a significant uptick in companies using their proxy statements to clarify how environmental and social matters are addressed and highlight new climate ambitions and commitments related to diversity, equity and inclusion.”

Dive Insight:

U.S. companies of all sizes have stepped up reporting on ESG issues in response to growing pressure from investors and other stakeholders.

A U.S. Chamber of Commerce survey found that 59% of companies have expanded their reporting on climate change risk since 2010. The survey of 436 companies ranging in size and across industries found that 63% communicate with shareholders on climate risk and 46% provide reports with greater detail in response to shareholder concerns.

Two-thirds of the companies in the Russell 1000 Index — including 90% of the largest companies in the index —released reports on sustainability in 2019, according to the Governance and Accountability Institute.

On climate change, 57% of Fortune 100 companies this year disclosed greenhouse gas reduction goals in their proxy, compared with 35% in 2020, EY said. One third of the companies highlighted goals to achieve net-zero greenhouse gas emissions by 2050 in line with the Paris Agreement.

Regulators are pushing for more detailed reporting on climate risks. Securities and Exchange Commission (SEC) Chair Gary Gensler said on July 28 that the agency this year plans to consider requiring companies to provide climate risk disclosures detailing direct and indirect carbon emissions, including those by suppliers and partners in its “value chain.”

Companies may need to disclose both qualitative and quantitative details, including how they manage climate-related risks and opportunities in day-to-day operations and in broad strategy, Gensler said. They may also need to report on metrics such as greenhouse gas emissions, financial impacts of climate change and progress towards climate-related goals.

Most investor climate change proposals focused on how companies plan to reduce greenhouse gas emissions in line with the Paris Agreement goal to limit the increase in global temperatures to 1.5 degrees Celsius, EY said. Other initiatives sought information on how companies plan to approach the risks and opportunities posed by climate change.

Two-thirds of Fortune 100 companies consider ESG principles when determining executive compensation or plan to do so in the coming year, compared with half in 2020, EY said.

“Amid the trend toward integrating ESG into executive compensation decisions, some are urging caution, noting that pay goals can lead to unintended consequences and that the right metrics may be challenging to define and assess,” EY said.

Along with environmental concerns, social issues rose to greater prominence during the 2021 proxy season, EY said.

“Following a year of profound economic and social upheaval and renewed national focus on racial justice, both the volume and support of shareholder proposals on DEI matters increased substantially,” EY said.

Proposals related to DEI topics averaged 42% support from investors, with 31% receiving majority backing, compared with an average of 25% support and 18% winning a majority vote in 2020, EY said.

Most proposals focused on diversity among executives and corporate boards, or asked companies to report data under the U.S. Equal Employment Opportunity Commission’s EEO-1 Survey, EY said.

“Board diversity was among the top engagement priorities investors shared with us this year,” EY said. “Institutional investors are now starting to incorporate related disclosure expectations and diversity thresholds into their proxy voting policies.”

Also, “in the wake of developments around the 2020 US election season — including some lawmakers’ challenges to the results of the presidential election, the attack on the U.S. Capitol and efforts to pass more restrictive voting laws — investors are paying renewed attention to corporate political and lobbying spending and the related risks to companies,” EY said.

The proposals call for board oversight and disclosure of direct and indirect corporate spending on lobbying and political contributions, with some focused on lobbying related to climate change, EY said.

“ESG developments continue to accelerate as the urgency around sustainability risks grows, global regulators step up the pace and stakeholder pressure increases,” EY said. “For their part, companies are increasing the breadth and detail of their ESG-related reporting to provide an accurate and comprehensive narrative about their response to sustainability-related risks and opportunities.”