Shareholder ESG resolutions

This article was written by Michael Robertson.

Increasing shareholder support for ESG resolutions

Although individual shareholders themselves can do comparatively little to mitigate the long-term effects of climate change, there is increasing recognition that the companies they own (whether directly or indirectly through their superannuation funds) can have a much greater impact on whether or not Australia plays its part in achieving global climate change goals.

Requisitioned resolutions with respect to environmental, social and governance (ESG) issues are one way we are seeing activist-led investor groups continue to push listed companies to act, and an area where we are seeing increasing levels of shareholder support.

These type of requisitioned resolutions typically follow the standard formula of: 

• an initial constitutional amendment to allow the advisory resolution to proceed; and
• a subsequent advisory resolution (conditional on the initial constitutional amendment being passed).

Recent climate-related ESG resolutions in particular, have attracted significant shareholder support at the AGMs of Rio Tinto, Woodside and Santos held earlier this year (see the table below). 

Despite the constitutional amendments on which the advisory resolutions were contingent receiving votes ranging between 6.28% (for Santos) and 8.79% (for Rio Tinto), it is clear from these figures that shareholders are increasing supporting climate-related ESG resolutions.

Where to from here?

A number of listed companies face requisitioned resolutions in the October/November AGM cycle, and although a majority of these are climate-related, there is an increasing number focusing on cultural / world heritage protection and on COVID-19 given recent events in Australia, and around the world. We will be watching closely to see if COVID-19 has a noticeable impact of the support for these type of requisitioned ESG resolutions and whether this trend continues to be reflected in upcoming AGMs.

Finally, with last week's SEC reforms to Rule 14a-8 in the United States increasing the value thresholds for shareholder requisitioned proxy statements or ballots (from current requirements of a holding of at least US$2,000 or 1% for at least a year, to alternative thresholds requiring continuous ownership of at least US$2,000 worth of securities for at least 3 years, US$15,000 for at least 2 years or US$25,000 for at least one year), we will also be watching with interest whether listed company boards continue to push for similar reforms to change the "100 member rule" here in Australia. The Federal Government may require some persuading given the growing strength of shareholder support for ESG resolutions to date.