Morningstar - Q4 2022 - 41

Anti-ESG Sentiment Gains Spotlight
but Not Support
Though these shareholder proposals
received a lot of attention this
proxy season, they garnered few votes.
Ruth Saldanha
BACKLASH
According to Morningstar's proxy database,
a record number of environmental,
social, and governance resolutions headed for
vote in 2022.
There has also been an increase in the number
of shareholder proposals opposed to ESG,
many of which are submitted by groups that are
critical of sustainable investing and ESG.
The anti-ESG movement has gotten a lot of
attention over the past year. Former Vice President
Mike Pence wrote an op-ed in The Wall Street
Journal criticizing ESG; Florida Gov. Ron DeSantis'
proposal to ban the state's pension fund from
using ESG considerations was adopted; and Texas
Gov. Greg Abbott signed a bill that prevents
public authorities from working with financial
institutions that have adopted ESG policies and
divested from Texas energy companies.
" Many of these bills are written without a great
understanding of sustainable investing, "
says Morningstar ESG equity strategist Kristoffer
Inton. " Any investor who ignores ESG risk,
like any other risk, does so at their own peril. "
This anti-ESG push has translated into more action
on shareholder proposals-close to 50 such
proposals were filed during this year's recent proxy
season. However, most of these proposals failed to
garner much support.
Anti-ESG Shareholder Proposals Fail
to Get Support
Morningstar's proxy database has tracked 43
anti-ESG proposals filed by the National Legal and
Policy Center, the National Center for Public
Policy Research, and activist Steven J. Milloy
during the 2022 proxy season. In the six
months from January to June, proposals filed by
these groups received only 7% support on
average, and only 13 received over 5% support.
In contrast, resolutions filed by other shareholders
achieved an average of over 30% support
across the board.
Part of the reason for the low levels of
support could be that asset managers don't see
anti-ESG issues as being relevant for
shareholder value.
" Our recent research shows that large asset
managers have come out strongly in favor of
measures that seek to improve diversity,
equity, and inclusion at the board level, senior
management, and in the wider workforce, "
says Lindsey Stewart, director of investment
stewardship research at Morningstar. " That
includes those that haven't so far taken a
particularly strong line on environmental issues
like climate or biodiversity. As one top-five
U.S. asset manager puts it: 'Our view is
that diversity of perspective and thought-in the
board room, in the management team and
throughout the company-leads to better
long-term economic outcomes for companies.' So,
we're seeing that these so-called anti-woke
proposals-such as those requesting reporting
on the impact of corporate DEI initiatives on
groups with no history of socioeconomic
exclusion-are getting almost no traction with
voting shareholders. "
Asset managers such as pension funds, for
example, require sound business reasons
to support or reject a proposal. Whatever the
proposal is, it should benefit the long-term
returns of the fund and be in the best interests of
the beneficiary, so that the asset managers
can fulfill their fiduciary duties.
" Businesses and investors care about what makes
a difference on the bottom line, " says Heidi
Welsh, the founding executive director of the
Sustainable Investments Institute. " If you
cut out the political noise and look at facts on the
ground, climate change is occurring, human
capital management is an important competitive
issue, and companies are managing for it
and investors are paying attention to it. Those
are the facts. "
Still, 13 proposals received significant support.
Let's look at those in detail.
Thirteen Shareholder Proposals That Earned
Investor Support
Of the 13 anti-ESG shareholder proposals that
received more than 5% support, 11 were filed
by the National Legal and Policy Center, or NLPC
( EXHIBIT 1 ). Five of these received more
than 20% support, with one proposal at Twitter
TWTR on lobbying disclosures receiving
over 40% support.
Many of the proposals that received support
appeared to raise legitimate governance or
disclosure issues. Additionally, some of these
requests targeted a specific niche or question that
attracted broader shareholder support. Many of
the anti-ESG proposals found language and
phrasing that the SEC finds acceptable by copying
earlier approved pro-ESG proposals.
" Proposals filed by anti-ESG players can be characterized
in two ways-original filings and those that
have been duplicated based on previously filed
proposals, " Welsh says. " Original filings have little
to no investor support. The issue gets a bit
morningstar.com/products/magazine
41
http://www.morningstar.com/products/magazine
Morningstar - Q4 2022

Table of Contents for the Digital Edition of Morningstar - Q4 2022
