ISS Analysis Finds Refined Investor Approach to ESG Proposals Has Led to Greater Support and Adoption

February 08, 2019

A new ISS analysis of proxy voting trends over the last 18 years finds that shareholder support for environmental, social, and governance proposals has increased from around five percent in 2008 to 24 percent in 2018 due to many factors, including a change by proponents and investors from a “values-based” approach to a focus on shareholder value and risk mitigation.

External pressures on the financial industry to focus on governance and sustainable business practices following the financial crisis led to greater focus on these issues more broadly.  In addition, principles-based initiatives, and pressure from proponents to have investors join (such as the UN Principles for Responsible Investment) reinforced these sentiments, as did major industrial disasters such as the 2011 Fukushima nuclear disaster.

Shifts in proponent tactics and investor focus from asking companies to adopt or change certain policies or business activities to seeking disclosure and risk assessment created greater dialogue around the issues.  Likewise, the shift to the impact of practices on tangible long-term value moved to a more holistic, rather than advocacy approach to the issues.

Greater ESG shareholder support buoyed by record low abstain votes and high withdrawal rates:  ISS also reports that large investors moved from abstaining on social or environmental issues to voting for or against them, with abstentions dropping from 16 percent in 2010 to 3 percent in 2018.  In addition, 48 percent of environmental and social proposals were withdrawn in 2018, while 37 percent went to a vote, which is a reversal of historical trends.

Why it matters:  The change in structure and support for environmental and social proposals may indicate further shareholder engagement and dialogue on these issues and reinforces the need for companies to educate investors on what issues are most important to their businesses.