The 2023 proxy season has been challenging for U.K. issuers, with the cost-of living crisis and depressed markets putting financials top of mind for both activists and institutional investors.

Advisory “say on pay” plans have faced increased pushback this season, with average support for proposals of this kind in the FTSE 250 dropping to 93.6%, compared to 94.3% and 94.5% in the 2021 and 2022 seasons, respectively. A similar trend presents itself in the FTSE 350.

While support for FTSE 350 and FTSE 200 director re/election proposals has remained relatively unchanged in the past three seasons, the same cannot be said in the FTSE 100, with average support for directors at 97.9%, down from 98.2% two seasons prior, largely related to excessive pay practices.

“We have not seen any let-up in the continued increase to executive pay,” Angeli Benham, senior global ESG manager at Legal & General Investment Management (LGIM) told Diligent Market Intelligence (DMI) in an interview earlier this year. “In most companies, there continues to be too much focus on short-term performance with long-term performance only representing around 50% of total long-term incentive program payments.”

At Pendragon’s June 30 annual meeting, its remuneration report was opposed by 56.4% of votes cast, while four directors faced upwards of 40% opposition. Shareholders cited concerns regarding a lack of justification surrounding increased executive payouts.

Excessive pay practices, alongside a lack of board independence, similarly resulted in Argo Blockchain’s pay plan being opposed by 51.4% of votes cast at its annual meeting that same day, while Chair Matthew Shaw faced 22.7% opposition.

Market volatility and attractive valuations also provided shareholder activists with bountiful opportunities for engagement this season, compared to seasons past. 22 gain board representation demands were made at U.K. issuers in the 2023 season, a 29.4% increase compared to the 17 demands made the previous season, according to DMI’s Activism module.

Of the 51 seats sought by activists in 2023, 14 (27.5%) were successfully obtained, down from 22 (61.1%) of 36 a season prior. In both time periods, more than half of seats gained were obtained via settlement agreements.

Much of the successful campaigns were geared towards streamlining and strengthening financials, including Palliser Capital’s successful bid for six board seats at Capricorn Energy. At the June 26 meeting, a majority of shareholders supported Palliser’s claims that the company’s proposed merger with NewMed Energy was “clearly deficient” and demonstrated a “brazen disregard for shareholder opinion.”

Rubric Capital Management also secured four seats via settlement at Mereo Biopharma Group, in a campaign aimed at remedying the company’s “deteriorating financial position and uncertain product pipeline.”

Smaller companies faced the brunt of activist pressure in the U.K., with eight micro-cap companies targeted in the 2023 season, a 167% increase on the three subjected to public demands one season prior.

On the ESG side, shareholder proposals were few and far between this season, although support held steady. The three environmental shareholder proposals subject to a vote won 18.5% average support, the same level as seen a season prior, while one request for human rights reporting garnered 6% support.

Management climate transition plans also received increased support, despite fewer going to a vote. Seven “say on climate” proposals received 95% support, up from 12 winning 92.9% support in 2022.

Despite 2023 being a quiet season for ESG, investors are confident that it will continue to be a priority, going forward.

“In Europe, momentum for responsible investment, sustainable finance and for responsible business is only growing and the EU’s leadership in that space is incredibly strong,” Simon Rawson, director of corporate engagement and deputy CEO at responsible investment charity ShareAction, told DMI in a July interview. “We saw maybe not spectacular results on ESG resolutions at European companies, but they were not bad results, particularly when you take into account the context of the energy crisis and the cost-of-living crisis.”