Devotion to ESG might have its limits with some investors

ESG? The topic, more specifically the environmental part, has become important to CRE investors and investors in general as well. There’s been “exponential growth in ESG and impact investing—due in large part to increasing evidence that business strategy focused on material ESG issues is synonymous with high quality management teams and improved returns,” according to the NYU Stern Center for Sustainable Business.

But liking franks and beans doesn’t mean that you’d be happy with it three times a day. A lot of investors are showing, through their actions, that while they approve of ESG (environmental, social, governance) in general, their devotion might have limits.

Not to suggest that shareholders aren’t completely averse to taking actions that have teeth. According to the proxy preview released in mid-March by the groups As You Sow, the Sustainable Investments Institute (Si2), and Proxy Impact, at that point there had already been 529 filed shareholder ESG-related resolutions for the year.

They included some early major wins on the advisory motions, including a 70% vote among Costco’s investors to adopt net-zero greenhouse gas reduction targets and 95.4% in favor at Jack in the Box on a report addressing plastic packaging.

In May, a majority of shareholder votes approved a proposal to increase efforts to “eliminate deforestation and the degradation of primary forests in its supply chains,” according to sponsoring organization Green Century Funds.

And yet, as the Wall Street Journal put it in a headline, “Investors balk at tough climate proposals.” Average support on environmental proposals dropped from 32% last year to 27% in 2022, it found. 

“The drop in overall approval for ESG-related proposals partly reflects low support for a wave of new anti-ESG proposals from conservative groups, which are also included in the data, said Heidi Welsh, executive director of the Sustainable Investments Institute,” the Journal reported. 

It’s likely there’s also a concern among larger shareholders that proposals could push for specific strategies and tactics that might be financially disadvantageous. As BlackRock wrote in May:

“BIS is more likely to support shareholder proposals that are consistent with our request to companies to deliver information that helps us to understand the material risks and opportunities they face, especially where this information is additive given the company’s existing disclosures. … Conversely, we are not likely to support those that, in our assessment, implicitly are intended to micromanage companies. This includes those that are unduly prescriptive and constraining on the decision-making of the board or management, call for changes to a company’s strategy or business model, or address matters that are not material to how a company delivers long-term shareholder value.”