The 2023 proxy season has been a mixed bag for ESG, with support for U.S. environmental and social proposals dwindling, despite a surge in proposal filings. Data from Insightia’s Voting module suggest that proxy advisors are partly to thank for this trend, potentially bowing to pressure from asset managers and the increasingly vocal anti-ESG movement.

In the first half of 2023, Glass Lewis has endorsed 23.9% of global environmental and social shareholder proposals, down from 30.6% throughout 2022. As a result, the 423 proposals of this kind subject to a vote globally have won 17.6% average support, down from 29.2% and 23.2% support, respectively, throughout 2021 and 2022.

“Proxy advisors were more discerning of shareholder proposals this season, and it’s hard not to think that the rising anti-ESG political backlash hasn’t had some impact on this,” Marc Lindsay, managing partner and director of research at Sustainable Governance Partners (SGP), told Insightia in an interview. “Advisors are now much more willing to recommend against the more prescriptive proposals, while also being more willing to acknowledge the progress companies are making on their ESG commitments and that proposals are outpacing market practices.”

Climate setbacks

Where the absence of proxy advisor endorsement was perhaps most palpably felt this season was the U.S., where anti-ESG sentiment is particularly prevalent. The 68 climate change shareholder proposals subject to a vote at U.S.-listed companies, as of June 30, have won 22.3% average support, less than half the 47.9% support seen two years prior.

Glass Lewis’ support for proposals of this kind has dropped to 34.3%, compared to 50% in 2022, despite making no material changes to its policy related to climate-related shareholder proposals.

“If you look at the support our proposals have received from proxy advisors in the past, both ISS and Glass Lewis have tended to support us both in the U.S. and Europe. This year, we only received support for our resolution at TotalEnergies,” McKenzie Ursch, legal advisor at Follow This, told Insightia in an interview.

In whitepapers, Glass Lewis expressed “significant reservations” concerning how both Chevron and Exxon Mobil approached their Scope 3 emissions disclosure, but decided shareholders should oppose requests for both companies to set medium-term Scope 3 emissions reduction targets, “given the level of complication and uncertainty in setting Scope 3 targets.”

Glass Lewis’ insights on the complexities of emissions reporting are not placating investors, however.

“Chevron and Exxon Mobil are miles behind where TotalEnergies is in mitigating their climate impact, so to advise for a proposal at TotalEnergies and against identical ones in the U.S. doesn’t make sense,” Ursch said. “In the long-term, I don’t think that their recommendations are acting in the best interests of investors.”

Anti-ESG pressures

With both advisors making few, if any, material changes to their policies pertaining to ESG shareholder proposals ahead of the 2023 season, this change in tack can more likely be attributed to growing anti-ESG sentiment.

“Liberal shareholders have dominated the [shareholder engagement] process for many years and now ‘own the battlefield,’ which should not be a ‘battlefield’ — it should be a process in which shareholders engage to try to help improve governance, leading to better company performance and returns,” Paul Chesser, director of the National Legal and Policy Center’s (NLPC) Corporate Integrity Project, and one of the so-called “anti-ESG” shareholder proposal proponents, told Insightia in an interview. “This is why you are now seeing conservative activist shareholders increasingly engage, and you are seeing the pendulum swing back in the other direction.”

“I’ve been paying attention to the rise in anti-ESG sentiment, sometimes dubious of its impact, other times understanding the threat. And I do think that this has had an effect on investors, and especially on advisors,” Ursch said. “If you read through either Glass Lewis’ or ISS’ voting guidelines, the advice they give is contradictory with the recommendations they have issued on our proposals.”

Indeed, when looking at both ISS and Glass Lewis’ voting policies, they suggest they will support most ESG proposals, provided they seek to address material, ESG-related risks.

According to ISS’ U.S. voting policy, the advisor will “generally vote for proposals requesting a report on emissions from company operations and/or products and operations,” unless the company already discloses such information to a level comparable to that of its peers.

Glass Lewis’ U.S. policy similarly notes that the advisor is “generally supportive” of ESG shareholder proposals and will consider requests in the content of a company’s “unique operations and risk profile.”

Lindsay of SGP told Insightia that this pressure on advisors to lessen their focus on ESG is also coming from the asset managers themselves, which are under pressure to support fewer ESG resolutions and want to see more closely-aligned advice from advisors.

“Last year, many [asset managers] thought that proxy advisors were painting with a broad brush when it came to certain types of proposals, whereas this year advisors are taking a more case-by-case approach,” Lindsay noted. “This is what the big fund managers – who are ultimately the advisors’ largest clients – want to see.”

In both January and May, groups of Republican state policymakers wrote to Glass Lewis and ISS, questioning whether their ESG policies breach their legal obligations to state investment vehicles and asking them to report on how they consider ESG when making recommendations on proposals.

ISS CEO and President Gary Retelny took the matter into his own hands in a June 13 letter, which cited the advisor’s reduced support for ESG proposals as “hardly the track record of an activist or advocacy organization pushing an ESG agenda.”

Just two weeks later, Glass Lewis issued a similar response, stating that it evaluates all environmental and social issues “through the lens of long-term shareholder value” and does “not seek to achieve any political or social goals” through its recommendations on ESG proposals.