Shareholder Proposals and the Right of Investors to Express Collective Voice on Materiality

The U.S. securities markets are built on the principle that materiality is defined by investors. Courts and the SEC recognize that information is “material” if a reasonable investor would view it as important in deciding how to vote or invest.

The shareholder proposal process under Rule 14a-8 is a crucial tool for investors to express this judgment collectively. Proposals allow investors to identify and elevate issues they deem material and to signal through voting outcomes the significance of those issues to the company’s investor base. Protecting this right ensures that shareholders retain the ability to guide corporate board and management on the risks and opportunities that matter to their investors.

Key Takeaways

• Collective voice defines materiality. Through voting outcomes on shareholder proposals investors indicate what issues are material to them.

• Shareholder proposals operationalize this right. They are a structured, market-based tool for investors to communicate material concerns directly to boards and management.

• Disclosure law reinforces this principle. Materiality under securities law is typically determined under a “reasonable investor” standard – i.e., what investors consider significant in consideration of the total mix of information.

• Restricting this voice undermines exercise of fiduciary duty and market accountability.

Shareholder Proposals: Expressing Collective Voice

• Structured Process: Proposals let investors raise concerns in a 500-word request included in proxy materials.

• Voting as a Signal: Support levels communicate clearly to companies what investors deem significant.

• Proven Accountability: Proposals have driven reforms on governance (independent chairs, majority voting), risk management (opioid oversight, predatory lending), and systemic challenges (climate resilience, online child safety).

• Dialogue & Resolution: Many proposals are resolved through engagement, improving governance and disclosure before a vote is even needed.

Why This Right Matters

• Fiduciary Duty and Materiality: Long-term, heavily diversified investors cannot diversify away systemic risks—such as climate disruption, public health crises, or financial instability. Shareholder proposals are the primary tool for these investors to express collectively which risks they consider material to preserving long-term portfolio value, making this right a cornerstone of fiduciary duty.

• Material to Business, Not a Distraction: Far from being a distraction, shareholder proposals surface core issues that boards may otherwise overlook or downplay. By elevating concerns about governance, risk management, or systemic challenges, proposals make companies more resilient, responsive, and ultimately more profitable over time.

• Forward-Looking Materiality: Shareholder proposals often highlight issues that may be uncertain today but are probabilistically material tomorrow. By surfacing such risks early, they ensure companies and investors can act before crises crystallize, consistent with the “reasonable investor” standard in securities law.

• Consistent with judicial definition of materiality. The Supreme Court has held that a fact is “material” under securities laws if there is “a substantial likelihood that a reasonable shareholder would consider it important” or if its disclosure would have “significantly altered the ‘total mix’ of information made available.” This definition originates in TSC Industries v. Northway, 426 U.S. 438 (1976), and was expressly adopted in Basic Inc. v. Levinson, 485 U.S. 224 (1988), which added that for contingent or speculative information, materiality depends on both the probability of the event and its potential magnitude.

The right to file and vote on shareholder proposals is the collective voice of investors on materiality. It is the practical expression of the “reasonable investor” standard in securities law. Weakening this right would strip investors of a cornerstone of corporate accountability and market stability. Protecting it ensures that materiality remains defined by those who bear the risk and reward of investment: the investors themselves.

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Authored by the Shareholder Rights Group.

Why Minority Support for Precatory Shareholder Proposals Promotes Transparency and Accountability

Sanford Lewis, Director of the Shareholder Rights Group.

While shareholder proposals on governance are perennial favorites that win majority support from shareholders, advisory proposals that continue to receive significant support from a bloc of investors highlight areas in which enhanced corporate disclosure could be material to a significant portion of a firm’s investors. Shareholder proposals that allow investors to aggregate collective support for improved disclosure by companies are an important part of the functioning of heterogeneous capital markets.

A July 3 post on the Blue Sky Blog asserted that the low voting outcomes for anti-ESG proposals reflect a general sentiment of shareholders in opposition to precatory proposals on ESG. But the voting outcomes this year do not bear out this conclusion. The article mistakenly concluded that this year’s 2 percent average voting for the anti-ESG proposals is not far from the supporting votes on ESG proposals overall this season.

A credible source of analysis, Morningstar, reports that the overall support for pro-ESG proposals averaged 20 percent this year. There is a large difference between 2 percent and 20 percent support. In fact, 20 percent support is recognized by many as the level that often compels boards and management to take note and consider responsive action.

Take proposals related to diversity, equity, and inclusion (DEI). There was a huge gap in voting outcomes this year between proposals that  focused on eliminating corporate diversity programs, which averaged support of 2 percent or less, and voting outcomes on proposals that sought better disclosure on diversity. Many investors continue to view board and employee diversity as a material issue relevant to a company’s capacity to function in a diverse society. Most tellingly, Georgeson reports that this year, proposals asking companies to disclose EEO data that the companies previously filed with the government received an average of 33 percent support. Instead of blanket opposition to precatory proposals, this outcome exemplifies the discernment of investors in supporting proposals that promise materially useful disclosure at low cost. Making those EEO reports public improves information to the market at essentially zero cost to the companies – this is a bargain for investors. In contrast, even a more expensive approach to assessing corporate diversity programs, asking companies to conduct racial equity audits, received 18 percent support, on average.

The suppressed top voting outcomes this year for environmental and social proposals reflect an ongoing political and legal campaign that pressures the largest asset managers, suppressing their significant volume of votes for many environmental and social proposals. Nevertheless, voting shareholders still demonstrate discernment and support for many shareholder proposals that sought improved corporate environmental and social disclosure.

Voting evidence from this season shows that shareholder proposals allow blocs of investors to express their collective voice regarding opportunities for improving corporate disclosure that would aid their investment strategies and decisions. A majority vote is not required for shareholder proposals to persuade the board and management regarding market demand for better disclosure on an issue viewed by their investors as significant to their company.

The shareholder proposal rule is structured to ultimately screen out repetitive proposals that are truly viewed as low quality by voting investors. In a 2020 rulemaking, the SEC  concluded that if a proposal receives less than 5 percent support the first time it is submitted, a proposal on substantially the same subject should not be allowed to be resubmitted for three years. The commission viewed this increase over the prior 3 percent threshold as better calibrated to ensure that the proposal that is resubmitted could have a realistic prospect of eventually obtaining broader support.  Notably, the number of pro-ESG proposals that are receiving support below that commission-determined threshold has essentially held steady, not risen. Instead, this year, a surge in anti-ESG proposals filed by new proponents drove up the total number of proposals receiving less than 5 percent support. They have a right to file those proposals, and shareholders have a right to reject them. That’s the marketplace of ideas working, not failing.

The shareholder proposal process allows shareholders, rather than the SEC, to make the first call as to whether a proposal is strong enough to merit ongoing consideration and whether the issue reflects a material concern for a significant portion of investors. While governance proposals may win the most votes in the current climate, other precatory proposals allow investors of nuanced strategies to exercise their voting rights and encourage better disclosure of emerging material interests to the market.  Precatory proposals continue to provide a dynamic opportunity for engagement and deliberation between and among investors and their companies.

Health and Safety in the Fast Food Industry

MIKAIL HUSAIN, ESG Analyst, SOC Investment Group

LOUIS MALIZIA, Corporate Governance Director, SOC Investment Group

In recent years, the food service industry has been rife with workplace health safety issues. Food service workers have been attacked, stabbed, shot, and killed by customers in the restaurants where they work. According to one study, between 2017 and 2020, at least 77,000 violent or threatening incidents took place at California fast-food restaurants. Recent data indicate that the cost of workplace violence could be as much as $56 billion annually – and that’s likely an undercount. However, workplace health and safety issues are not limited to customer violence. Workers have also been made to work under unsafe and unsanitary conditions, such as restaurants with high kitchen temperatures and restaurants infested with vermin.

These issues and the media response they elicit are clear operational and reputational risks for the companies, which can lead to difficulties with staff retention in an industry with high turnover. According to the U.S. Chamber of Commerce, the food service and hospitality industry has a consistently high “quit rate.” Understaffing at fast food restaurants can lead to longer wait times for customers, diminished employee productivity, and an increase in safety hazards. Workplace health and safety issues in fast food restaurants have led to worker strikes and protests of working conditions, as well as fines and temporary restaurant closures imposed by regulators.

Why should investors care? If left unaddressed, workplace health and safety issues can expose companies and their shareholders to unnecessary risk. In recent years, shareholders have recognized the risks posed by workplace health and safety issues and are pressing companies to take more action to address them. In 2023, Dollar General shareholders demonstrated this with a majority vote in support of a health and safety audit proposal.

To address these risks, SOC Investment Group has filed health and safety audit proposals at McDonald’s, Yum! Brands, Restaurant Brands International, and Chipotle for the 2025 proxy season. The proposals are similar to the proposal we filed last year at Chipotle, which received 30% support from shareholders, well above the average support level of 18% for social proposals in the S&P 500 in 2024. The resolution requests that the companies’ boards of directors commission an independent third-party audit on the impact of company policies and practices on the safety and well-being of workers throughout company-branded operations.

We believe any relaxation of safety standards in pursuit of short-term benefits creates risks for workers, customers, and shareholders and may result in long-term reputational damage that can be difficult to reverse. In addition to these risks, companies that neglect health and safety in the short term may face increased regulatory and business risks that can erode margins and reduce long-term shareholder returns.

Further Reading.

Shifting Policy Terrain on Shareholder Engagement

NATALIA RENTA , Associate Director, Corporate Governance and Power, Americans for Financial Reform Education Fund

The current administration has hit the ground running with policy changes designed to stymie shareholder engagement and corporate accountability, with particularly visible and harmful attacks targeting corporate progress on racial equity. Our opponents laid the groundwork for these actions through bills passed by the House of Representatives last Congress and Project 2025.

One of the first executive orders Trump issued tasked the Attorney General with writing a report with recommendations on how to encourage the private sector to end diversity, equity, and inclusion (DEI) initiatives. It also tasked the Attorney General and other agency heads with coming up with a “strategic enforcement plan” to “deter DEI programs or principles.” While a judge temporarily blocked implementation of portions of this and another anti-DEI executive order, many large corporations quickly pulled away from their DEI initiatives.

Meanwhile, the Securities and Exchange Commission (SEC) took various steps to tilt the shareholder advocacy playing field in favor of corporate boards and executives and against shareholders pushing them to address important risks. First, the SEC wreaked havoc by updating a Q&A that, in effect, incentivizes large asset managers to cast pro-management votes and halt any positive engagements with companies on critical issues shareholder advocates have put to the fore. It does so by expanding the types of shareholder advocacy that could be construed as “changing or influencing” control of a company, which would trigger further regulatory requirements from investors who own over 5% of a company’s shares. Following the release of the Q&A, BlackRock and Vanguard temporarily halted meetings with companies.

The SEC also made it harder for shareholder proponents to get their voices heard by issuing Staff Legal Bulletin 14M, which changed how the SEC staff evaluates company requests to effectively let them exclude shareholder proposals from proxy statements. As Commissioner Crenshaw noted, this bulletin “moves the goalposts smack dab in the middle of this year’s shareholder proposal process.” She also noted that corporations will be able to make additional arguments to exclude shareholder proposals while shareholders won’t be able to change their proposals to be in line with the parameters set by the new legal bulletin.

Unfortunately, we can expect more actions by the SEC to further incentivize asset managers to cast pro-management votes, coerce proxy advisors to recommend pro-management votes, weaken corporate disclosures, and make it harder for shareholder proponents to get their proposals in proxy statements.

We can also expect detrimental shifts in policy from the Department of Labor as it will likely attempt to rescind a Biden-era rule that makes clear ERISA fiduciaries can take into account relevant environmental, social, and governance factors when making investment decisions and encourages fiduciaries to exercise shareholder rights, including proxy voting. Republican Attorneys General sued to block the rule, but a district court judge in Texas has upheld the rule twice, including this past February.

As the policy terrain continues to shift, shareholder advocates will have to remain vigilant and experiment with new strategies to get their voices heard and make change.

For more perspectives on the 2025 Proxy Season, click here.

ICCR Letter to BlackRock on Integrating ESG Risk Factors

In November of 2024, ICCR wrote Larry Fink, the CEO of BlackRock, expressing a number of concerns regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks.

Dear Mr. Fink,

We are writing on behalf of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of over 300 global institutional investors that collectively represent more than $4 trillion in managed assets, to reflect the concerns of a number of investors and clients regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks. Our members, many of whom are shareholders and clients of BlackRock, are long-term investors who have raised these concerns with you before through conversations and correspondence.

While we are mindful of the recent pressures fund managers face from parties attempting to discredit ESG, the fiduciary case for integrating material ESG risk factors into investment decisions and proxy voting is clear and irrefutable. BlackRock’s own research1 indicates that the long-term implications of inaction on climate change could reduce global economic output by nearly 25 percent over the next two decades, making addressing climate change a material issue for fiduciaries. Yet despite this, BlackRock's recently released 2024 Global Voting Spotlight reports that the firm “supported (only) four out of the 161 shareholder proposals on climate and natural capital that we voted on”. This was 2.5% of votes cast on climate resolutions. The firm’s proxy voting record on shareholder resolutions related to impacts on people was no better as BlackRock “supported 16 out of the 332 shareholder proposals we voted on (~5%), 14 at U.S. companies and two in EMEA”. We believe this an abdication of fiduciary duty and is also bad business.

BlackRock’s survey of institutional investors clearly indicates that your clients care about proxy voting on sustainability (which emerged as the number one criterion for selecting managers by 20% of 200 institutional investors surveyed, second only to “access to proprietary deals’ - selected by 23% of respondents) so you will not be surprised that we are raising these concerns again.

Furthermore, BlackRock’s 2024 proxy voting record and rationale appear at times to be unclear. The most recent NPX filings indicate BlackRock voting against disclosure asks that it supported only last year, and offering vague voting rationale on other asks arguing that: “The request is either not clearly defined, too prescriptive, not in the purview of shareholders, or unduly constraining on the company”. The 2024 Global Voting Spotlight also indicates that in over 60% of the cases, BlackRock did not support a shareholder resolution because the "company has a process in place to address business risk” even in cases when the company did not make appropriate disclosures about the processes in place to address the issue(s) to the shareholders, the proponents or the SEC. At DexCom, BlackRock opposed a majority supported 2024 shareholder proposal calling for political spending disclosure in an election year. This is a clear example of BlackRock’s understanding of material risks raised by shareholder proposals diverging from the majority of shareholders at the company. Given how important proxy voting on sustainability is to your clients we hope you will address some of these apparent inconsistencies.

In February 2024, we welcomed BlackRock’s announcement that it was developing a new sustainability-focused stewardship offering for clients who want its active ownership work to drive decarbonization and sustainability outcomes3. The announcement explained that this service was in response to client demand as a survey of 200 institutional investors globally, representing nearly $9tn in assets under management indicated that 98% of them have set some kind of transition investment objective for their portfolios. However if managing climate risk is a key element in maximizing long-term value for clients then we would expect BlackRock to pursue that consistently as part of your fiduciary duty. BlackRock’s own Resilience Through Change; 2024 Insurance Global Report indicates that 99% of the 410 senior executives representing US 27T of AUM surveyed reported having set at least one type of transition objective within their investment portfolio, a clear indication of the materiality of climate risks among the majority of that sector.

As we look at the hundreds of climate related and social resolutions, we believe many more than 4 resolutions make a strong business case related to shareholder value and are not overly prescriptive. It seems like BlackRock has instituted a new high bar for shareholder resolutions that is almost impossible to meet. We are concerned about what motivated this change and fear that pressure from conservative investors played a role in the shift. In addition, we note that many other investment firms guided by the same fiduciary standards as BlackRock have a much higher number of percentage of votes for resolutions.

Furthermore, while we appreciate your case-by-case approach to assessing shareholder proposals, ICCR members and many of your clients are investors with diversified portfolios and ignoring systemic risks like climate and racial justice may benefit one of their companies but passes that cost on to the other companies in their portfolio. PRI and CAF’s recent guidance on stewardship also states that: “Using influence to promote short-term performance or the performance of individual companies, industries, or markets, without regard to overall value, does not constitute stewardship”.

There is growing evidence that asset owners are becoming increasingly concerned about asset manager’s proxy voting on ESG shareholder proposals5 and many are taking action6. And it seems these concerns are well placed. The UK Asset Owner Stewardship Review highlights a growing misalignment between asset owners and asset managers when it comes to exercising stewardship and proxy voting at major Oil and Gas companies. This misalignment is more pronounced (i) in recent years, (ii) on shareholder resolutions (vs management proposals) and (iii) at American companies (vs. European ones). There is also worrying evidence that asset managers’ corporate engagements are not moving the needle with companies.

As clients and shareholders our members want to see BlackRock as both a market and an ESG leader and would welcome efforts on behalf of the firm’s leadership to reiterate their commitment to ESG and to commit to a critical review of their proxy voting guidelines and record. We welcome the opportunity to continue the dialogue with you on the issues raised.

Sincerely,

Josh Zinner, CEO Interfaith Center on Corporate Responsibility

Katie McCloskey, Vice President of Social Responsibility, Mercy Investment Services

David A. Klassen, Chief Investment Officer, The Pension Boards - United Church of Christ, Inc.

Matthew Illian, Director of Responsible Investing, United Church Funds

Ethan Birchard, Executive Director, Friends Fiduciary Corporation

How Investors Deploy Shareholder Proposals

Patrick Miller speaks with Sanford Lewis regarding investors who file shareholder proposals at publicly-traded US companies related to social and environmental issues. They discussed the process for submitting these proposals pursuant to SEC rules.

HOST: Patrick Miller is the Founding Attorney at Impact Advocates APC.

*Disclaimer: The information in these recordings is provided for informational purposes only. You should consult with an attorney before you rely on this information. This information should not be seen as legal advice and does not create an attorney-client relationship. This interview is meant to be a general discussion and may not include all relevant information regarding the issues covered.

Why Faith Groups Have Historically Practiced Responsible Investing

The full statement can be found on ICCR’s website.

Religious organizations steward their organizational finances and the investments managed on behalf of their constituents and beneficiaries in alignment with the beliefs, teachings, and values of their respective faiths. Many religious organizations develop investment guidelines, which include strategies such as screens to exclude industries that they believe cause injury to society, shareholder engagement with portfolio companies to mitigate environmental and social harm, and investing in companies or projects that are making a direct and positive impact.  This practice, known as faith-consistent investing, is one form of what today is commonly referred to as sustainable and responsible investing. Faith-consistent investing is a fundamental right protected under the First Amendment, which guarantees both free speech and religious freedom, and ensures that investors are able to make their investment decisions in accordance with their beliefs.

The Interfaith Center on Corporate Responsibility (ICCR) is a coalition of over 300 faith and values institutional investors who, for more than 50 years, have been leaders in faith-consistent and sustainable investing. Our genesis as an organization is grounded in the advocacy of multiple faith groups to address the racist apartheid regime in South Africa. Faith-consistent investing leads religious investors to assess how corporate policies and practices may adversely impact the health of people and the planet, which has a direct impact on the long-term performance of their portfolios.

Faith-based investor engagements with portfolio companies, through dialogue and the filing of shareholder proposals, are a natural extension of these beliefs and are central to both our duties as trusted fiduciaries seeking competitive returns and our responsibilities as faithful stewards supporting the fundamental values of our religious traditions. For this reason, we are concerned about any attempts by legislators or policymakers to interfere with investors’ fundamental freedom to make investment choices and/or engage with portfolio companies in alignment with their investment philosophies and institutional values. This includes letters received from the House Judiciary Committee in 2024 by several of ICCR’s faith-based members requesting informational disclosures under the pretense of exploring violations of antitrust laws.

While each faith institution has its own set of priority issues that it addresses through its respective ministries and advocacy work, there are many issues where faith investors’ interests converge. Actions to mitigate the climate crisis ravaging our planet, to uphold human rights, including the fair treatment of workers, and to ensure equitable and affordable access to healthcare are just a few examples of priority issues of common concern among many faiths.  The 2016 Edinburgh Finance Declaration is one example of the world’s leading faiths articulating their shared values. We believe that companies that adopt forward-looking policies and practices to mitigate environmental and social risks are well-positioned for long-term financial success and value creation. Conversely, companies that ignore these risks may endanger the performance of the capital we are called to steward, and impose enduring external costs on society, the economy, and the planet that sustains us. Over the past 50+ years, ICCR member engagements with corporations on these issues have resulted in improved conditions for various stakeholders, including workers, customers, communities, and shareholders. For instance, most of the world’s faiths emphasize stewardship of the planet, care for creation, and moral responsibility toward the environment, which makes them deeply concerned about the climate crisis. Faith investors working in climate-vulnerable communities witness firsthand how climate change adversely affects these areas. Without the adoption of meaningful climate mitigation and adaptation measures, extreme poverty and inequality, risks to land, food and water security, forced migration and geopolitical conflict, along with global health risks, will all intensify. Consequently, faith investors often align with other like-minded investors to tackle climate risk and advocate for a reduction of GHG emissions from our portfolio companies. Faith-based investors actively promote worker justice, which includes workplace health and safety protections, the provision of a living wage, and the freedom to associate and engage in collective bargaining. Faith-based investors have advocated for health equity, engaging with the world’s largest healthcare companies to ensure that medicines and healthcare services are affordable and accessible reaching those most in need.

Importantly, while we often cooperate in investor spaces around strategies to spur corporate action, we make independent investment decisions to provide risk-adjusted returns to our individual constituents and beneficiaries in line with our respective faith beliefs. The U.S. Constitution provides that “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof,” and the First Amendment protects the religious liberty that is foundational to this great nation. This ban against government interference in faith-consistent practices is essential when considering all aspects of the life and work of religious institutions, including their investment decisions.  It preserves their autonomy to invest their organizational assets and the pensions of their millions of beneficiaries in a manner consistent with their religious beliefs.  In recognition of the constitutional limits of entanglement between the federal government and religious institutions, Congress included a Church plan exemption in the Employee Retirement Income Security Act of 1974 (ERISA).

We want to reiterate our belief that companies committed to addressing their impacts on society and the environment are better positioned for financial success over the long term. For this reason and because our faith calls us to do so, we will continue to invest and engage with our portfolio companies to realize that goal.

S&P Global Market Intelligence: SEC proposed rule would have blocked 614 ESG resolutions since 2010, data shows

Author: Esther Whieldon

Since 2010 more than 600 environmental, social and governance-related resolutions likely would have never advanced under a newly proposed rule by the U.S. Securities and Exchange Commission, according to data the Sustainable Investments Institute shared with S&P Global Market Intelligence.

The SEC in November 2019 proposed to increase the amount of support a shareholder resolution required to be reconsidered in the years following an initial vote. Rather than resolutions needing at least 3% support the first year, 6% the second year, and 10% the third and subsequent years after an initial vote to be reconsidered, the SEC would raise those thresholds to 5%, 15% and 25%, respectively. The agency estimated the changes would cut the number of shareholder proposals by 7%.

While the rule has yet to be finalized, the Sustainable Investments Institute, or Si2, compiled a database of ESG resolutions voted on from the beginning of 2010 through Nov. 18, 2019. Si2 found that 614 ESG-related resolutions, or about 30%, of the 2,019 proposals voted on at company annual meetings over that period would not have been eligible for resubmission. That total is almost three times the number of resolutions — 206 resolutions — that could have failed existing threshold requirements over that time, according to Market Intelligence's analysis of the data.

Of the 614 potentially impacted resolutions, political activity, climate change and human rights issues would have taken the biggest hit.

Companies are coming under increased pressure from investors to disclose how ESG risks could impact their bottom line, and they are addressing those risks and opportunities. But groups such as the U.S. Chamber of Commerce and Business Roundtable have pushed for reforms to the shareholder resolution process.

Investor Coalition Fights Opioids Crisis

By LAURA E. WEISS, CQ

It began as a suggestion from a county health official to leaders of a group of nuns’ money management program. They were addressing climate change, modern-day slavery and immigration — why not the opioid epidemic?

A year and a half later, the mammoth coalition of investors born from that idea wields $2.2 trillion of influence, urging the largest U.S. drug companies to take accountability for playing a role in the opioid crisis. The group, Investors for Opioid Accountability, has cut deals with companies in the business of making or distributing opioid painkillers to review how they oversee sales of the highly addictive drugs and make other corporate governance changes aimed at improving supervision of opioid sales.

“No one is untouched by the opioid crisis in the country — or even globally now as it’s beginning to turn out — but we lead with the investor lens because that is our responsibility and our duty to give an investor voice to it,” says IOA co-leader Meredith Miller. She says the coalition”s 46 members — including state treasurers, public pension funds, faith-based investors and union benefit funds — are hearing from their ministries, citizens or union members about the crisis.

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IOA’s shareholder proposals include requests for reports on board oversight of risks related to opioid sales, mechanisms for recouping executive pay in the case of misconduct, disclosure of lobbying spending, independent board leadership and other adjustments to oversight mechanisms and how the CEO and other top leaders are paid.

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IOA has claimed several victories so far. The coalition’s opioid risk report proposal won support from 62 percent of investors in Assertio Therapeutics Inc., which makes opioid painkiller Nucynta. The same proposal neared majority approval at AmerisourceBergen Corp., one of the “big three” U.S. drug wholesalers. IOA says it has a commitment from another large distributor, Cardinal Health Inc., to publish risk reports, recoup executive pay in cases of misconduct and split the roles of CEO and board chair. McKesson, the country’s sixth-largest company, and several manufacturers have also agreed to changes including reviews of how directors oversee opioid sales, avoiding votes on IOA’s proposals.

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ESG factors as a good signal for future risk

Jane Jagd, Bank of America

What if we told you how to avoid stocks that go bankrupt?

We think you would listen. Environmental, Social & Governance (ESG) factors are too critical to ignore, in our view. In our earlier report ESG: good companies can make good stocks, we found that ESG-based investing would have offered long-term equity investors substantial benefits in mitigating price risk, earnings risk and even existential risk for US stocks — ESG would have helped investors avoid 90% of bankruptcies in the time frame we examined. Our findings were encouraging enough to warrant a closer look. We here assess how US corporations, regulators and investors are positioned for ESG, and how the market is responding.

ESG is the best signal we have found for future risk

Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.

US corporates may be behind the curve . . .

Despite empirical evidence of its efficacy, ESG is not drawing much enthusiasm from US corporates. Among companies participating in our survey at our March 2017 BofAML US Investor Relations conference, almost half of the survey respondents indicated they have no resources dedicated to ESG initiatives, and no intentions of implementation. Globally, the theme is burgeoning: ESG-related regulations have doubled since 2015; over 6,000 EU member state companies will be required to publish disclosures; and 12 global stock exchanges require written ESG guidance – but not one is in the US!

. . . but investors are ahead of it & PE multiples are responding

In our May survey of BofAML institutional clients, 20% cited using ESG, well above the estimated 5% of float that corporations believe is held by ESG-oriented investors. In another investor survey, 66% raised issues on sustainability disclosures, and 85% called for improved disclosure in filings. And the investment industry is changing to accommodate governance: for the first time ever, FTSE Russell ruled out the addition of zero voting rights stocks, citing “concerns raised by shareholders.” The market is listening: shareholder-friendly companies have seen significant multiple expansion — and we see strong signs that this re-rating continues.

Read the full text here.

Shareholder Proposals and trouble at Bayer's Acquisition

In 2016, shareholder John Harrington, the president of Harrington Investments Inc., filed a proposal at Monsanto regarding health risks from the company’s flagship weedkiller Roundup. The proposal noted “an increasing number of independent studies assessing the toxicity of glyphosate, the active ingredient in Roundup, associate it with cancer, birth defects, kidney disease, and hormone disruption, causing world-wide concern about its safety”. The proposal requested a report assessing the effectiveness and risks associated with the company’s policy responses … to the impact of recent reclassification of glyphosate as “probably carcinogenic,” and quantifying potential material, financial risks or operational impacts on the Company in the event that proposed bans and restrictions are enacted.

On its 2016 vote, the proposal received 5.3% voting support. Refiled in 2017, it still only received 5.5% support. Yet, this relatively small group of shareholders proved to be prescient in identifying a material issue.

Only two months after Monsanto was acquired by the German pharmaceutical company Bayer in June 2018, a jury granted a $289 million award in a suit alleging public health threats and cancer of a plaintiff caused by Roundup. This news sliced billions of dollars from Bayer’s valuation. Bayer’s market capitalization has descended steeply in the following months, from $99.1 billion as of August 10, 2018 (the date of the jury verdict), to $64.8 billion as of November 20, 2018 and after losing another jury verdict, $56.2 billion by May 24, 2019.

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