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Less might be more in ESG

A new study from Institutional Shareholder Services (ISS) has revealed companies which received a single ESG-related shareholder proposal had a higher median sustainability improvement compared to those with many proposals.

The impact of the first ESG-related shareholder proposal on companies is laid bare in the data, despite the fact that only a tiny portion of shareholder proposals are agreed to by companies.

"Since 2014, only 30 of the environmental and social (E&S) proposals considered in this paper received a passing vote, comprising 3.26% of all such proposals," the research found.

"However, corporate responses to shareholder resolutions can result in improved sustainability outcomes for companies long after the votes are tallied."

By giving companies sustainability scores, ISS was able to measure how much sustainability improved after a shareholder resolution on ESG-related matters.

It found sustainability scores increased notably after the first ESG shareholder proposal. But, once companies receive many proposals over consecutive years there is no correlation to improved sustainability scores.

The study suggests that companies which are slow-moving on ESG issues are targeted repeatedly by multiple shareholders.

This is because the companies that receive the most proposals on ESG issues over multiple years are the "most concerning" according to ISS, likely to be already slow moving on ESG issues.

"Study findings indicate that companies that received a single E&S proposal had a higher median sustainability improvement compared to companies receiving multiple E&S proposals in later years. These results indicate that investors identify the slow-improving companies and continue to target them with follow-up proposals," ISS said.

"The results also suggest investors should be mindful of companies that do not sufficiently address shareholder proposals the first time they are submitted, or those that fail to convince shareholders that their concerns will be addressed in the future."

Higher shareholder support of ESG proposals was not found to correlate to significant sustainability improvement - in fact, it often correlated to a lack of responsiveness by the company.

Higher vote support was found to emerge after many failed proposals or engagements with investors, perhaps indicating a company's unwillingness to engage on ESG issues. Low voter support and infrequent shareholder proposals, ISS said, could indicate shareholders have faith in the company's own ability to address ESG issues.

"Infrequent proposals may also suggest that a company is engaging with concerned shareholders and addressing the issues before they reach the ballot," ISS said.

Read more: ISSESGE&SInstitutional Shareholder Services
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