By Chirag Acharya
   Senior Analyst, Sustainable Investment Stewardship

 

 

   Lucas Schoeppner
   Manager, Sustainable Investment Stewardship

 

Recurring readers of this blog have likely heard us write about shareholder engagement before. It is a key element of our Invest, Engage and Avoid approach to sustainable investment. Today, we wanted to share some thoughts on an important shareholder engagement tool: proxy voting.

Proxy voting refers to casting ballots as a shareholder on corporate governance-related matters at the annual general meetings (AGMs) of the companies in which we invest. All shareholders have the right to participate in AGMs and vote on a variety of corporate governance topics. It’s not typically as dramatic as it’s been depicted on shows like Succession, but it’s no doubt an important element of making our voices heard as an investor.

Like all our shareholder engagement efforts, proxy voting can be an opportunity to support more sustainable business practices and policies, which we believe will enhance shareholder returns.

In addition to shareholder resolutions, which are effectively recommendations for changes to company policies and business practices that all shareholders consider, AGMs offer the chance to vote on board director nominations and executive pay packages. Ultimately, proxy voting provides an opportunity to hold companies and their boards accountable for delivering shareholder value and managing risks on behalf of investors.

We believe voting on these topics in a thoughtful way can help lead to greater financial security and improved returns for our participants and investors.

Most company AGMs usually occur in spring and early summer, so for the past few months we’ve been heavily involved in proxy voting. Every AGM season tends to take on unique characteristics as relevant themes and topics evolve year over year. Below we highlight three key themes that Wespath voted on in 2024!

1. Human Rights in Conflict-Affected Areas

Wespath has a long history of supporting human rights in our engagement work, particularly in regions where those rights might be vulnerable, like conflict-affected and high-risk areas (CAHRA). CAHRA include places where armed conflict is taking place, such as Russia and Ukraine, Israel and Gaza, and the Democratic Republic of Congo. It can also refer to high-risk areas such as the Xinjiang Uyghur Autonomous Region in China where there are accusations of forced labor imposed on the indigenous population by Chinese authorities. These areas face heightened risk of human rights abuses and violations of international humanitarian and human rights laws.

Wespath filed a shareholder resolution focused on CAHRA at Mondelēz International, ahead of the company’s 2024 AGM. Mondelēz owns brands such as Oreo, Cadbury, Sour Patch Kids, Ritz and Wheat Thins. We asked for a third-party, independent report assessing the effectiveness of the company’s implementation of its Human Rights Policy (HRP) for operations in CAHRA.

We believe that investors would benefit from increased transparency and reporting on the company’s management of material human rights risks, including those associated with their operations in Russia and Ukraine. At Mondelēz’s AGM in May, the proposal received over 30% support from shareholders. We believe this is a strong result for a first-time resolution and look forward to engaging with Mondelēz on next steps given this clear shareholder interest.

If you’d like to read more about this issue, Wespath General Secretary and Chief Executive Officer Andy Hendren recently wrote to the Financial Times to explain why Mondelēz’s indifference on its operations in Russia was concerning to shareholders like us.

2. Dual Class Share Structures at Tech Companies

Wespath is a member of the Investor Coalition for Equal Votes, a group of investors who advocate for equal voting rights for all shareholders. Some companies employ dual-class share structures wherein certain shares, often held by company founders and executives, have greater voting power than the shares held by investors like Wespath. For example, this type of structure is used at Facebook parent company Meta Platforms, where founder Mark Zuckerberg’s voting decisions effectively seal the outcome on all shareholder concerns.

Wespath co-filed a proposal this year at Meta, asking the company to disclose its voting results in a way that differentiates between those shares carrying one voting right and those carrying multiple voting rights. We believe shareholders would benefit from greater transparency on how proposals are voted.

This is particularly relevant given the recent risks faced by the company. Meta has been the subject of public and regulatory scrutiny on issues like the exploitation of children and the handling of users’ private data. In similar situations where risk to shareholder value is clearly heightened by emerging risks, it’s important that shareholders have a meaningful voice in company decision-making.

Based on our analysis of Meta’s voting results, approximately 55% of independent shareholders (those not holding Meta’s share class with more voting power) supported this resolution. That is a positive indicator of shareholder interest in this topic.

3. Climate Risks and Shareholder Rights at ExxonMobil

Actions taken by U.S. oil and gas giant ExxonMobil have emerged as one of the biggest shareholder engagement topics this year. Exxon filed a lawsuit on January 22, 2024, against two shareholders, Arjuna Capital and Follow This, who had filed a proxy resolution with the company focused on carbon emissions. We believe this action taken by Exxon represents a broader threat to shareholder rights amid continued concern regarding the company’s management of climate risk.

Acting on this concern, Wespath, along with Mercy Investment Services, encouraged other shareholders to join us in voting against ExxonMobil Executive Chair and CEO Darren W. Woods as well as Lead Director and Nominating and Governance Chair Joseph L. Hooley, due to their oversight of these issues. We believe shareholder proposals have encouraged companies like ExxonMobil to better prepare for the future, and that investors should have the right to decide which shareholder ideas deserve support.

Numerous investors, representing trillions in collective assets under management, joined Wespath in expressing concerns about this litigious approach.

And that sentiment was reflected quite clearly in the voting results for Director Hooley. Compared to historical results from last year’s proxy season, Director Hooley’s support ranks in the bottom 10% of all director candidates from S&P 500 companies, based on data published by shareholder engagement consultant Georgeson.

If you’re interested in hearing more about the Exxon story, we recently spoke with Net Zero Investor about why we were recommending votes against these two directors. Andy also wrote about Exxon in a recent CEO blog that he titled, “Why Exxon’s Climate Change Strategy Is Running on Empty”.

Where To Learn More

The themes listed above are just a sampling of the topics we’ll be voting on this year. And next year promises its own unique proxy voting considerations!

You can learn even more about our engagement and proxy voting strategy by visiting our Shareholder Engagement webpage.