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Shareholder Resolutions and Activist Investing

Resolutions are decisions about companies that need to be made by the owners (the shareholders).  While there are different laws in each country, there are generally two types of resolutions - General/Ordinary and Special (which require a higher percentage of votes from shareholders to pass).

A resolution is usually proposed by the company and deal with things like voting on who will constitute the Board of Directors, and on Executive Remuneration.  

However, Shareholders can propose resolutions and this is where ethical investing can have a real impact on what happens in a company.  Depending on the country and company rules, shareholder resolutions may not be binding on the company, but they can send a strong message to the Directors and Management.

Most of the fund managers that Moneyworks recommends do not consider themselves 'activist investors'. That is, they would not propose a shareholder resolution to be voted on to achieve change (however, at least one fund manager does take this approach). Many aim to achieve change by actively engaging and talking with the company about their concerns.

While these resolutions have included topics such as producing tobacco in the past, recent times have seen environmental activists submitting resolutions relating to climate change and failure to set a strategy for low carbon futures.

in 2021, a shareholder resolution lodged by Engine No. 1, at Exxon Mobil saw success, which led to two board members replaced by Engine No. 1 candidate's to help drive the oil company towards a greener strategy.  Similarly, 61% of Chevron shareholders voted against the company board in favour of an activist proposal from Dutch campaign group 'Follow This' to force the group to cut its carbon emissions.

2021 indicated that momentum was being achieved and that times could be changing.

However, although there were 389 environmental and social proposals were submitted in the recent US proxy voting season, support dropped from 37% in 2021 to 33% this year. The Russian invasion of Ukraine and the demand for energy and fuel that is not sourced from Russia has led to some investors (fund managers) to change their voting strategy. In particular, Blackrock (the worlds largest money manager), who had previously positioned themselves as climate conscious changed their track and voted against shareholder resolutions that it considered to be too extreme or prescriptive.

That doesn't mean that all is lost though.  While this is a 4% fall, there are many other ways for investors to influence a company and many of these activist investors are targetting the 'big boys' in the fossil fuel industry, that most of Moneyworks clients don't actually invest in. Other proposals requesting reporting on environment-related issues had higher backing, including 7 resolutions asking for reports on plastic pollution, which received an average of 45% support.

This reinforces why it is important for Moneyworks to understand our fund managers approach to their voting responsibilities, as well as their approach and actual outcomes from Active Engagement.




 

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