2024 proxy voting season 1 highlights | |||
---|---|---|---|
Global | 54,865 Items voted | 12.5% Votes against Management | |
USA | 16,376 Items voted | 8.5% Votes against Management | 49% ESG Shareholder Proposals supported and abstained |
Canada | 6,660 Items voted | 14% Votes against Management | 45% ESG Shareholder Proposals supported and abstained |
Table 1: Items voted globally, in the U.S., and Canada along with respective votes against management and support for ESG shareholder proposals. Source: BMO Global Asset Management, June 30, 2024.
2024 proxy trends
- An assessment of Russell 3000 annual meetings reveals a 5% increase in shareholder proposals filed over 2023 2.
- The number of shareholder proposals filed at S&P 500 companies remained flat in 2024 compared to the previous year 3.
- In Canada, 130 proposals were filed by just 20 shareholders. 51 of these were withdrawn after agreement 4.
ESG resolution topic/theme | Year on year change | 2024 average investor support | 2023 average investor support |
---|---|---|---|
Lobbying & political spending | +2% | 27% | 25% |
Corporate Governance | +3% | 20% | 17% |
Climate Change | -4% | 19% | 23% |
Diversity& inclusion | -3% | 23% | 26% |
Human rights | -4% | 16% | 20% |
Environment | -8% | 15% | 23% |
Table 2: Thematic assessment of support levels for shareholder proposals filed by members of the Interfaith Center on Corporate Responsibility of shareholder proposals Source: ICCR’s Shareholder Exchange, June 14, 2024.
The continued decline in support for ESG shareholder proposals from peaks witnessed in 2021 may be attributed to a host of factors, such as strong push back from certain groups and political actors against the consideration of social and environmental matters in business, general economic outlook, geopolitical risks, and the asks of the proposals themselves. Taken together, these seem to have affected investors’ voting approaches on these subjects 6.
In recent years there has also been a proliferation of counterproposals from shareholders that call on companies to generally do less on ESG factors. The 2024 season saw a 19% year-on-year increase of these counterproposals at Russell 3000 companies 7 and a notable 66% increase at S&P500 companies. Average support for these however continues to trend downward, to just under 2% 8. In Canada, 6 counterproposals were filed, and these were requests related to the reversal of and/or disclosure of costs of the company’s decarbonization plans 9.
What’s up and what’s down? A blend of traditional and new voting themes
- Governance is back. There was a marked uptick in the number of Governance proposals in Canada and the U.S. where average support was up at least 4% over the previous year with a record number of these proposals receiving majority support in 2024 across the Russell 3000 10 and S&P500 11. In fact, Governance proposals were the only kind of ESG proposals receiving majority support this year. In Canada, a large number of proposals specifically addressed virtual-only Annual General Meetings (AGMs) and requested that companies ensure an in-person component to their annual meetings, requests we typically supported. This addressed an emerging concern from investors that since 2023, 53% of TSX Composite Index companies and 58% TSX 60 Index companies held virtual-only AGMs 12.
- Climate on the decline. There was a decline in the number of climate-related proposals on the ballot. This is consistent with how we voted. In 2024, we voted 19 climate-related shareholder resolutions in Canada compared to 25 in the previous year, and 51 climate-related resolutions in the U.S. compared to 73 in the previous year. Average support for climate-related proposals is down at least 4% and none of these received majority support this year. A significant number of these resolutions were withdrawn after agreements were reached between the proponent and the companies, indicating the value of engagement and dialogue alongside the use of proxy mechanisms, in the furtherance of desired outcomes.
- New technology concerns dominated in Social. We noted a continued trend in Artificial Intelligence-related shareholder concerns with several resolutions filed at technology and media companies requesting greater algorithmic transparency, human rights risks and ethical guidelines, and response to misinformation capabilities of AI. Support levels for these proposals varied between 17% and 43%, including an instance of 53% of independent shareholders (and 16.7% of the overall vote) voting in favour 13. These vote outcomes show that it is likely that AI will continue to gain prominence amongst shareholders, and we expect this to be a key topic of interest going forward.
Proxy voting at BMO GAM and our approach
At BMO Global Asset Management (BMO GAM), we exercise our voting responsibilities on behalf of our internally managed mutual funds and ETFs. Voting of proxies forms an important element of our responsible investment approach and is guided by our Corporate Governance Guidelines (CGGs), wherein we set our expectations of good corporate governance. The CGGs include, and are not limited to, subjects related to board independence and effectiveness, compensation, audit, risk and control, shareholder rights, disclosures, and social and environmental factors. We prepare and make available a proxy voting record on an annual basis for the period ending on June 30 of each year in respect of each of the BMO Mutual Funds and BMO ETFs and our vote disclosures are accessible here for Mutual Funds and ETFs.
How we voted
Approximately 50% of BMO GAM’s voting this proxy season was at U.S. and Canadian company-related meetings. As such that is where we focus most of our write up on for this proxy season review. Our votes against management decreased from previous years, which was partially a result of voting guideline changes related to executive compensation, auditor tenure, and director tenure. As such, we vote against management where concerned practices or outcomes were below the expectations and market norms outlined in our voting guidelines.
Figure 1: Meetings voted across markets. Source: BMO Global Asset Management, as of June 30, 2024
Figure 2: Management resolutions voted and votes against management (VAM) globally, in the U.S. and in Canada. Source: BMO Global Asset Management, as of June 30, 2024
Figure 3: Shareholder resolutions voted and votes against management (VAM) globally, in the U.S. and in Canada. Source: BMO Global Asset Management, as of June 30, 2024
Management resolutions
In Canada
Figure 4: Votes against management on different management resolutions in Canada. Source: BMO Global Asset Management, as of June 30, 2024
Figure 5: Thematic concerns that led us to vote against election of directors in Canada. Source: BMO Global Asset Management, as of June 30, 2024
Board effectiveness concerns included cases where the director is over-boarded, has low attendance in board and committee meetings or the board lacks in standard market practice such as a ‘three key committees’ structure on the board. For example, we assess whether a board nominee is over-committed and serving on too many boards at the same time, because we believe director duties have become much more complex over time, and directors should have the time and capacity to properly oversee management, as well as the capacity to respond to extraordinary circumstances such as a global pandemic. We consider serving as non-independent director on four or more public boards as over-boarded, which mostly will lead us to vote against the nominee.
Lastly, around a third of our votes against director elections are related to inadequate board diversity. We voted against 249 chairs of nominating committees at Canadian company boards due to our minimum diversity expectations not being met: at least 30% of gender diversity and at least one director bringing ethnic diversity/identifying as from an underrepresented group. This represents a slight increase from 2023 when we withheld support from 239 nominating committee chairs. However, we are glad to once again report on progress on Canadian board diversity: in 2024 we were able to support at least 25 nominating committee chairs we had withheld support from in 2023 due to diversity concerns, indicating improvements at these company boards.
Figure 6: Votes Against and in support of Canadian nominating committee chairs because of board diversity. Source: BMO Global Asset Management, as of June 30, 2024.
Spotlight on our expectations on board diversity in Canada
In 2022 we raised our expectations on board diversity in Canada by increasing our minimum level of female representation on S&P/TSX boards from 25% to 30%, consistent with our commitment to the 30% Club Investor Group Canada. Additionally, we implemented a new voting guideline to withhold support from chairs of nominating committees in the absence of any racial diversity — unless the board conveyed meaningful plans, targets, and timelines to address the matter. This is consistent with our support of the Canadian Investor Statement on Diversity & Inclusion. Read more about our voting in 2022 here.
While we recognize sensitivities around assessing individual director identities, we encourage boards
to report aggregated data on the number or percentage of racial and other types of diversity and underrepresented groups, based on voluntary self-disclosure. Through membership of organizations such as the Canadian Coalition for Good Governance (CCGG) we have been advocating with Canadian regulators to put in place mandatory disclosure requirements on diversity beyond gender based on relevant categories consistent with human rights law and which would allow for comparability across peers, as already mandated by the Canadian Business Corporations Act (CBCA).
In the U.S.
ESG Shareholder Proposals
In Canada
Spotlight: The rise of virtual meetings
Deciding our vote on ESG shareholder proposals
- Does the shareholder proposal’s ask address a material or salient ESG issue for the company or a systemic risk for its industry?
- How does the shareholder proposal align with BMO GAM’s priority areas on climate action, social equality and overall good governance?
- How is the company performing against peers
- What is our precedence in supporting similar proposals in other or the same markets or sectors?
- Can the shareholder request be reasonably implemented?
What does abstain mean? In certain cases, we opt to vote “Abstain” on shareholder proposals where we agreed with the proponent’s intention but find the actual request overly prescriptive or not reasonably implementable. The decision to abstain relates to us abstaining on the topic, not on the vote itself (it still makes our vote count). Our vote rationale text explains why we chose to abstain. This is our attempt of bringing nuance into the generally binary nature of voting.
Social and other (environment). We voted on 10 social proposals with the prominent subject among these being human rights. We supported 4 social shareholder proposals, including 2 related to human rights, and 1 each related to diversity and anti-microbial resistance. We also supported 5 other environment-related shareholder requests requesting reduction of plastic use (2) and report on water risk exposure in supply chains (3).
In the U.S.
Governance. We voted for 127 (or 37%) of 201 governance-related proposals. Typically, governance proposals in the U.S. included requests related to adoption of simple majority vote in board elections, board declassification, elimination of supermajority voting and reduced ownership threshold for shareholders to call a special meeting.
Social. We supported 98 (or 47%) of the 205 social-related shareholder proposals, covering topics such as human and labour rights, diversity and inclusion, data privacy and civil rights. Interestingly, we saw at least 8 resolutions related to artificial intelligence-linked risks, a rising topic this year, which included requests for greater algorithmic transparency, ethical guidelines, and misinformation response, the vast majority of which we supported.
Climate: We supported 32 (or 62%) of the 51 climate proposals we voted. These include topics such as disclosure of greenhouse gas emissions, climate lobbying, clean energy financing, climate transition plans and the Just Transition.
Looking ahead
Footnotes
1 We define the 2024 proxy voting season as the period from January 1 – June 30, 2024 ↩
2 https://www.georgeson.com/us/insights/2024-proxy-season-early-look ↩
3 https://www.freshfields.com/49ee6e/globalassets/noindex/documents/trends-and-updates-from-the-2024-proxy-season.pdf ↩
4 2024 proxy season preview: which ESG votes are key for investors – Shareholder Association for Research and Education, 2024 ↩
5 ICCR’s 2024 proxy review, Interfaith Centre on Corporate Responsibility, June 2024 ↩
6 https://corpgov.law.harvard.edu/2024/04/24/environmental-social-policy-issues-in-the-2024-u-s-proxy-season/ ↩
7 https://www.georgeson.com/us/news/2024-another-record-breaking-year-for-shareholder-proposals ↩
8 https://corpgov.law.harvard.edu/2024/06/12/six-early-takeaways-from-the-2024-proxy-season/ ↩
9 2024 proxy season preview: which ESG votes are key for investors – Shareholder Association for Research and Education, 2024 ↩
10 https://www.georgeson.com/us/news/2024-another-record-breaking-year-for-shareholder-proposals ↩
11 Six Early Takeaways from the 2024 Proxy Season (harvard.edu) ↩
12 ISS, 2024 Canada Proxy Season Preview, March 2024 ↩
13 https://www.morningstar.com/sustainable-investing/investors-challenge-ai-automation-proxy-voting-season ↩
14 Responsible Engagement Overlay, a third-party pooled engagement service provider ↩
15 2024 proxy season preview: which ESG votes are key for investors – Shareholder Association for Research and Education, 2024 ↩
16 ISS, 2024 Canada Proxy Season Preview, March 2024 ↩
17 https://www.investorsforparis.com/2024-agm-season-summary/ ↩
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