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21-03-2023 · インサイト

Confusion and noise require constructive dialogue for AGM season

Opposing shareholder proposals and an anti-ESG backlash will make for a confusing AGM season, Robeco’s Active Ownership team believes. While the public debate will become more polarized, constructive engagement between management and their shareholders will become more necessary.


  • Michiel van Esch - Head of Voting

    Michiel van Esch

    Head of Voting

In recent years, institutional investors have used their influence to promote better ESG practices, with the aim of enhancing company performance while they prepare for the sustainability challenges of the future. However, there has recently been a growing sentiment against efforts to improve the environmental, social and governance (ESG) characteristics of companies, particularly regarding their preparedness for climate change and on social topics such as diversity and inclusion.

In the US, for example, two different trends have emerged. On the one hand, some want to set stricter expectations on sustainability. On the other, anti-ESG groups claim that sustainability integration is a luxury that companies cannot afford at a time of macroeconomic strife, and that ESG is add odds with investors duty to aim all focus on investment returns.

“In the 2022 AGM season, we saw the start of a change in sentiment which we believe will become more apparent in the 2023 season,” says corporate governance specialist Michiel van Esch. “An increasing amount of shareholder proposals are being filed with the aim of countering ESG measures. These proposals never directly ask companies to worsen their ESG performance, but rather aim to discard its financial relevance.”

Long-term perspective

For Robeco, ESG in the end is about taking a long-term perspective that helps portfolio companies to prepare for the future – something that if done well will be in the best interest of clients and other stakeholders.

“Often, the phrasing in these resolutions suggests their objective is to request standard governance improvements, but the supporting public statements provided by the proponent reveals that the true objective is to frustrate the companies' ESG efforts,” say Van Esch. “Discerning the true objective of these proposals therefore comes with unique challenges and requires an in-depth analysis spanning well beyond companies’ proxy statements and annual reports.”

“Our clients expect us to take ESG issues into account to promote their investment goals, which include financial and sustainability considerations. Robeco assesses each shareholder proposal on a case-by-case basis and supports resolutions that aim to increase transparency on material ESG issues, enhance long-term shareholder value creation, address material ESG risks and enforce appropriate conduct.”

“In most cases, we will oppose resolutions that are used to support an anti-ESG narrative.”

Climate voting

The need to address climate change has raised the bar in the activism shown by investors who several years ago would merely ‘rubber stamp’ management decisions. Now, how a company is moving to reduce its carbon footprint, for example by cutting emissions, has risen to the top of AGM agendas – sometimes put there by the managements themselves.

“A few years ago, shareholder proposals were the only item on the agenda that sought to address global warming,” Van Esch says. “However, over the last two years, companies have started to put their own strategies up for a vote, gauging how shareholders view the company's approach to the climate transition.”

“Additionally, shareholders have started voting against director nominations or other agenda items if companies fail to make sufficient progress on climate change. Until last year, shareholder proposals asking for improved climate change action were gaining increased support. In 2022 however, support levels stabilized or even dropped, probably triggered by the energy crisis sparked by the conflict in Ukraine.”

Societal pushback

This is also likely to manifest itself in lower support for ‘Say on Climate’ proposals, he says. “For the coming AGM season, it is likely that shareholder proposals will gain slightly less support, because climate advocacy is receiving a higher degree of societal pushback.”

“Likewise, the ‘Say on Climate’ proposals are likely to gain lower support rates, as the usual ESG-minded supporters of such resolutions will be setting more stringent standards to the quality of transition plans in order to support them.”

“Robeco will generally support resolutions that ask for climate transition plans, reporting and target setting. For Say on Climate resolutions, our assessments will carefully review the quality of these plans based on sector-specific best practices and a credibility analysis, rather than applying a high-level principle-based review.”

“Again, it will be difficult for management to read the results from AGMs with such conflicting trends. Hence, ongoing shareholder consultation and dialogue before and after the meetings will remain key to understanding what the shareholder base actually expects from management.”

Protecting biodiversity

The Active Ownership team will similarly take a tough line with companies that are not sufficiently aligned with the goals of the Climate Action 100+ investor collaboration, the Transition Pathway Initiative, or Robeco’s own climate change framework.

“Our assessment of how well they are aligned will inform a vote against director nominations, or the accounts and reports, to stress the urgency of the topic,” says Van Esch.

“And starting in 2023, we will gradually phase in a similar approach to biodiversity, which is one of our other sustainability priorities, next to similar approaches for climate change and human rights.”

Challenging the overpaid

Another contentious topic is the old chestnut of executive pay that is not aligned to performance. Both the US regulator, the SEC, and the EU’s Shareholder Reporting Directive (SRD2) have strengthened ‘Say on Pay’ disclosure rules for companies.

“In recent years, Say on Pay proposals have gained much more attention,” Van Esch says. “This was largely triggered by the recent crisis years in which many companies deviated from their pay plans, arguing that exceptional circumstances such as Covid were out of the control of management.”

“Therefore, bonuses were often paid out, despite missing performance targets, or were cancelled completely when deemed inappropriate, given the negative experience of shareholders or other stakeholders.”

Tackling short termism

However, enforcing a strong link between key performance indicators and pay-outs only tackles part of the remuneration issue, he says. “A significant problem with many pay policies is that they create a focus on achieving short-term spikes in performance rather than sustained performance over multiple years,” warns van Esch.

“This is because many long-term incentives use an aggregation of a three-year trailing average profits being paid out on an annual basis. Additionally, the pay of chief executives has increased much more quickly in recent years than average employee wages.”

“Robeco uses an assessment framework to judge whether executive pay packets are justified. Based on this framework, we support approximately 70% of remuneration reports and oppose 30%. The good news is that even though all of the attention usually is aimed at the problematic failures of Say on Pay votes, there are also many examples of remuneration committees that do a decent job.”


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