Shareholders Forced to Consider Social Good: Environmental and social issues pick up steam this proxy season.

• Author: Singer, Thomas
• Position: BEYOND THE BOTTOM LINE

A review of this year's proxy season shows a continued upward trend in the volume of proposals on environmental and social (E&S) issues.

In total, shareholders voted on more than 200 proposals on these issues, which represent 43% of all voted proposals, based on our recent research at The Conference Board. Overall, average shareholder support for E&S proposals remained modest, at 21% of "for" votes Tas a percent of votes cast).

However, the 2017 proxy season saw a surge in support levels across a few key issues, resulting in six successful E&S proposals this year.

Directors should monitor developments in each of the main E&S issues that stood out this year:

* Climate risk reporting: This year, shareholders voted on 18 proposals requesting companies to disclose the business risks of climate change. Among E&S proposals, this issue generated the highest levels of support this year. In fact, support levels reached a historic high of almost 40% of "for"votes--up from less than 17% just two years ago. The surge in shareholder support resulted in three successful proposals this year, submitted to Exxon, Occidental Petroleum and PPL.

In large part, the surge in support results from a shift in the voting policies of traditionally passive investors. Some of the largest passive investors, including BlackRock and Vanguard, are now looking at climate change as a major investment risk and have begun exerting pressure on companies to disclose and manage their climate-related risks. This pressure has already started to pack a punch: over a quarter of S&P 500 companies now disclose climate change risks in their annual reports, up from only 5% just three years ago. As evidenced by the historically high levels of support for proposals on climate change risk disclosure, directors can expect continued shareholder engagement on this issue.

* Board and workforce diversity: Shareholders voted on 14 proposals about diversity issues this year, almost triple the volume compared to last year. More than half of these proposals--a total of eight--requested that companies report on efforts to ensure board diversity. Support levels for these eight proposals reached an average of 27% of "for" votes, and resulted in two successful proposals, submitted to Cognex Corporation and Hudson Pacific Properties.

While the...