Active ownership: which social issues were in focus at the 2024 voting season?
We examine the social issues that dominated the 2024 voting season with a focus on our Blueprint themes of human rights, human capital management, and diversity & inclusion.
Autheurs
Voting on shareholder resolutions is one of the ways we hold companies to account for their management of environmental, social and governance (ESG) risks and opportunities.
As outlined in our Engagement Blueprint, we evaluate shareholder resolutions on a case-by-case basis, using our decision framework. In our 2024 Voting Season Spotlight blog, we explain how we used our votes as part of our ongoing engagement and escalation with holdings on social topics, defined in the Engagement Blueprint as human rights, human capital management and diversity and inclusion. This includes withholding support for director nominees and supporting shareholder resolutions where we believe the company should take more action to address a specific social risk or opportunity.
This year saw a continuation of many social themes in proxy statements, such as reports on the effectiveness of diversity and inclusion policies, human rights standards and impact assessments, as well as workplace safety and gender and racial pay gaps. New social shareholder resolutions covered the governance and transparency of artificial intelligence (AI), the health impacts associated with food products and living wage disclosures.
As companies contend with these societal forces, it is even more important for investors to understand the actions companies are taking to manage risks and capture new opportunities when they emerge.
Human rights
Investment risks related to human rights came into focus this year amid a combination of disruptive technology, geopolitical conflicts, and supply chain stressors which can lead to elevated regulatory, financial and reputational risks for companies.
In 2024 we introduced a new voting policy to escalate our engagements at companies we have assessed to be in breach of Global Norms of corporate behaviour. There is no single definition of Global Norms; a breach is generally viewed as egregious behaviour and a cause of significant harm.
Schroders considers widely recognised principles, such as the UN Global Compact, and a defined set of criteria to identify, assess and engage companies that have potentially breached Global Norms. We voted against directors at companies that were unresponsive to our engagements on the violations or where we do not believe they have made significant progress to remediate any harms caused. For example, we voted against the re-election of the chairman of a Japanese company due to concerns over human rights issues within its supply chain.
This year, a variety of human rights focused shareholder proposals asked companies to examine the actual or potential impacts of their products and services on their customers and consumers. This was apparent at technology companies, where shareholder resolutions related to child safety online, the spread of misinformation or disinformation, and the use of AI were prevalent.
Access to products and services also retained a presence on proxy statements, with pharmaceutical companies being asked to report on the impact of extending patents on patients’ access to their medicines. We explained our decision to support this shareholder resolution at Eli Lilly on our proxy season blog. These proposals underscore the increased focus on monitoring product end use and companies’ ability to demonstrate that their products and services are aligned to their broader sustainability commitments.
Human rights due diligence in the supply chain was a focus for several consumer goods companies. These include proposals addressing working conditions and child labour risks in supply chains, particularly for businesses with exposure to high-risk commodities. We generally support resolutions which ask companies to examine the effectiveness of their human rights due diligence, particularly for salient risks such as child labour.
Human capital management
We continue to consider fairness between executive and wider workforce pay and benefits in the UK through our voting on executive remuneration. For example, following multiple rounds of engagement with Next plc on the topic of workforce pensions, we escalated our concerns to a vote against the executive remuneration report in 2024. Compared to peers, the workforce pension levels are currently very low (set at the statutory minimum) and there are no apparent plans to improve these.
We also continued to escalate our engagements on paid sick leave. We co-filed a shareholder resolution at TJX Companies asking it to disclose its permanent employee paid sick leave policy. The company was receptive to our request, and detail around its policy, including eligibility and permitted uses of paid sick leave on its website in March of this year. Together with the lead filer, we agreed to withdraw the resolution as the company met our disclosure request. We also voted against the “say-on-pay” package at US retailer Dollar General, partly due to concerns that the company had not adequately addressed ongoing labour management issues. The package received approximately 73% support, representing a significant drop from last year’s package which received 90% support.
Respect for freedom of association, workplace safety and living wages continued to be a core focus of human capital management shareholder proposals this year. Companies’ ability to support their employees through the cost-of-living crisis and pay competitive wages has been a key focus for our human capital management engagement strategy in recent years, as we seek to understand how businesses balance the need to recruit and retain employees while managing costs. We believe that policies that allow businesses to use their discretion to design wage policies that reflect a family’s basic needs is an important element of effective human capital management. We explain why we voted to support a living wage resolution at Kroger on our proxy season blog.
Diversity and inclusion
We address board oversight of diversity & inclusion (D&I) through our votes. We continue to hold companies to account on board gender and ethnic diversity, and also do so for executive diversity in the UK in line with the recommendations of the FTSE Women’s Leaders review. Over the past year, we have also enhanced our voting policy to vote against directors in the US where the company did not disclose its Equal Employment Opportunity Commission (EEOC) data. So far this year, we have voted against directors at approximately 600 companies on diversity grounds.
Shareholder resolutions related to diversity and inclusion have been one of the most prominent filings so far this year. These include resolutions asking companies to disclose diversity, equity and inclusion data, report on gender and racial pay gaps, and conduct third-party audits to assess adverse impacts from policies, products and services on communities of colour.
Companies can benefit from building diversity across a range of perspectives. When paired with inclusive cultures, these can help produce positive impacts such as increased productivity and greater team satisfaction. Greater transparency of corporate diversity allows investors to better assess how companies are building diverse workforces. We generally vote to support resolutions where they provide shareholders with greater transparency over the company’s diversity data and greater insight into how the company is building an inclusive culture.
What’s next?
While voting is an important element of active ownership, engaging with companies is a year-round exercise that helps us to understand how companies manage and mitigate their ESG risks and identify ESG opportunities.
Our engagement efforts will continue to prioritise the issues we believe are most material to each of the companies we engage, as we encourage companies to make changes we believe will enhance the long-term value of their business.
Autheurs
Topics