Nuveen’s 2023 Proxy Season Preview: Proxy Voting Can Help Companies Integrate ESG into Corporate Decision-Making

Companies are beginning to shift away from making ESG commitments solely to improve external ratings and more toward disclosing how specific ESG strategies and measurements are influencing their business decisions – a trend that investors can encourage via proxy voting, says the 2023 Proxy Season Preview released today by Nuveen, the asset manager of TIAA.

Nuveen’s annual Preview looks to greater targeting of directors, continuing focus on greenhouse gas (GHG) emissions targets, and careful examination of pay equity as key market themes that will shape this year’s investor agenda and proxy voting trends.

Avoiding “Unintended Consequences”

Proxy voting is one of the only systematic and comparable investment-focused perspectives that stakeholders have into asset managers’ assessment of a company’s ESG (environmental, social, and governance) program, the Preview notes. However, incentivizing leadership based on third-party “leaders/laggards lists” or other superficial metrics can have the unintended consequence of favoring short-term stewardship proof points over long-term stakeholder progress.

“The 2022 proxy season reinforced our view that ESG issues can present material risk to investors. While overall support for E&S proposals declined, a record number still received majority support. This shows that investors are beginning to coalesce around ESG standards of best practice, and they remain willing to support proposals that focus on improving transparency and accountability,” said Amy O’Brien, Nuveen’s Global Head of Responsible Investing. 

“To encourage companies to continue integrating ESG into core business strategies, investors must show evidence of bringing enhanced disclosure into the investment process,” said Peter Reali, Managing Director, who leads Responsible Investing’s engagement efforts. “Proxy voting can be one avenue where investors can signal to companies either an understanding or a lack of understanding – and either acceptance or disapproval -- of positive ESG momentum or an ESG strategy that is projected to create or hinder long-term value.” 

Among the other trends highlighted in this year’s Preview:

• Targeting Directors: Stakeholders are likely to escalate tactics to further their goals by targeting directors more, including by potentially using universal proxies to nominate new directors. As noted in Nuveen’s 2022 proxy season preview, there is a correlation between board refreshment and improving company decarbonization. The question for 2023 is whether investors see decarbonization as the intent or the byproduct of how the board oversees company strategy and how much the market focuses on past performance or company strategy as the indicator of future risks and opportunities.
• Focus on Greenhouse Gas Emissions: The focus on GHG emissions reduction targets should continue to garner significant support as well as catalyze positive momentum for decarbonization. In certain industries, clear evidence of decarbonization success strategies adopted by leading companies may translate into some strategy-specific proposals receiving significant support. However, proposals that are overly prescriptive in terms of an unproven value-add business strategy or a business strategy with the potential of significant unintended consequences may continue a trend seen in 2022 of not having the same level of institutional support. 
• Examining Pay Equity: It is likely that stakeholders will continue the focus on pay equity, but the support for shareholder proposals on the issue has been inconsistent year-over-year. In terms of getting to majority support, the question is whether pay equity is the goal itself or is the byproduct of better overall human capital management. Other stakeholders request more open-ended disclosure improvements that address the talent pipeline, company culture and racial equity. These proposals are likely to see significant support, but the reasons will vary across investors as many of these proposals encapsulate several issues and key performance indicators.
  
   

Nuveen’s 2023 Proxy Season Preview can be viewed here.