The top three institutional investors published their voting priorities and policies for 2022 with a major focus on diversity, equity, and inclusion as well as climate. In particular, boards should prepare to articulate plans to address risks posed by climate change while decarbonizing their operations.
BlackRock continued its push for climate risk mitigation and stakeholder management. CEO Larry Fink published his annual letter to CEOs. He called on companies to respond to employee concerns and welfare while working to minimize turnover; ensure boards are monitoring workforce wellbeing, including improvements in diversity, equity, and inclusion; and provide a plan for transitioning to a net-zero emissions economy.
State Street CEO Cyrus Taraporevala was more direct, providing specific actions which will drive voting. Globally, the firm is pushing for all companies, regardless of size or national market, to have at least one female director. Companies in most developed markets are expected to have 30% female directorships by 2023. Specific to the U.S., State Street will vote against the Compensation Committee Chair of any S&P 500 company that doesn’t publish its EEO-1 report and/or vote against the board chair if the company does not furnish climate-related disclosures requested by the Taskforce on Climate-related Financial Disclosures (TCFD).
Vanguard proxy voting policies are not as focused on ESG as BlackRock and State Street. Their executive compensation voting policies remain broadly the same. Specifically, they will focus on companies that have above median total compensation but whose TSR trails the peer group median, as well as concerns about commitment to rigorous performance goals and/or adjustments to performance targets during the performance period.
Outlook: Institutional investors demonstrated far more willingness to vote in favor of shareholder proposals tied to climate change risks and workforce demographic disclosures. BlackRock and State Street have both expressed a preference for the TCFD framework for climate disclosures, but only State Street has called for a specific workforce demographics disclosure. Expect elevated support for reasonable ESG proposals, but given generally strong shareholder returns in 2021, executive compensation criticisms may remain muted and Say on Pay votes are likely to be less combative.