May 3, 2011

Social, Environmental Concerns Dominate Shareholder Resolutions

Voter support on the increase as well

Shareholder resolutions that deal with sustainability issues dominated all others in 2010, and it is estimated that in 2011 half of all shareholder resolutions will focus on social and environmental concerns. So says a report issued Tuesday by Ernst & Young titled Shareholders press boards on social, environmental risks.

The report says that the number of corporate social responsibility (CSR)-related shareholder proposals brought to a vote increased from 150 in 2000 to 191 in 2010. Not only that, those resolutions were far more popular among shareholders voting their shares, more than doubling the support they received at the beginning of the 10-year span and going from 7.5% to 18.4%.

Shareholder resolutions tend to attract the attention of corporate board members when they reach a threshold of 30% of shareholder support, according to the report, and the percentage of social and environmental resolutions reaching that level increased from only 2.6% in 2005 to 26.8% in 2010.

Steve Starbuck, Americas Leader Climate Change and Sustainability Services, Ernst & Young LLP, said in a statement, "Increased awareness among investors and regulators of the reputational and financial risks associated with CSR and environmental sustainability places more pressure on companies to identify and manage these issues. This trend has truly evolved over the last decade and it is gaining more traction as reflected in the growing number of proposals voted on and the level of 'for' votes cast this season."

Financial and reputational risks tied to climate change and sustainability, says the company, are driving institutional investors to propose more, and more specific, targeted environmental and social shareholder resolutions. Increasingly, these link social and environmental issues to traditional governance issues like compensation and board member qualifications.

Ann Brockett, Americas Assurance Leader, Climate Change and Sustainability Services, Ernst & Young LLP, said in a statement, "As shareholder resolutions related to climate change risk and other environmental issues increase, the most progressive, forward-thinking companies will be prepared to address stakeholder concerns."

In light of the report findings, Ernst & Young executives suggested several actions for board members to take regarding such resolutions:

  • Better disclosure regarding social/environmental issues and better dialogue with shareholders about them (thorough and sound sustainability reporting will help)
  • Tying director skills to stakeholder concerns, including risk management in social and environmental areas, and making shareholders aware of how director skillsets fit with corporate strategy
  • Consider the possibility of nontraditional performance metrics, including those that focus on environmental/sustainability issues, to help align compensation with risk.
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