Proxy Voting in 2023: Preparing For A New Wave of ESG Engagement

Executive Summary

Over the course of the last several years, the Pickering Energy Partners ESG Consulting team has seen a variety of trends emerging related to ESG and proxy voting.

  • ESG has become a lens through which investors can engage with companies, which has culminated in an increase in ESG-related activist engagements and shareholder proposals.
  • BlackRock, State Street, and Vanguard turned their attention to directors this year, sending a clear message that directors who fail to maintain sufficient oversight of ESG issues risk being unseated.
  • Changes to proxy voting policies have resulted in those who lead public companies having a broader set of shareholders with whom to engage in 2023.
  • Going into 2023, there will be increased scrutiny from Proxy Advisers such as ISS and Glass Lewis on disclosure of climate risks and targets, diversity across all levels of the organization (including at the board level), and director accountability.
  • Companies should prepare for increased engagement across topics such as climate risks and governance, board diversity, racial equity, political activity, and cybersecurity.
  • Management teams can prepare for the 2023 proxy season by:
  • Educating the Board of Directors on trends in proxy voting and planning to involve directors proactively in engagement with shareholders.
  • Analyzing institutional investors’ proxy voting guidelines and policies now to ensure disclosures address the issues investors care about.
  • Ramping up engagement efforts with investors, stewardship teams, and the broader audience of limited partners (LPs) ahead of the 2023 proxy season.

Looking Back at Recent Proxy Trends

Over the course of the last several years, we have seen trends emerging related to ESG and proxy voting. 2021 saw an unprecedented level of support for shareholder proposals on ESG topics and emerging opposition to director elections. Following the flood of ESG proposals supported in the previous proxy season, the 2022 proxy season functioned more as a reset. The U.S. experienced a 133% increase in the number of environmental and social shareholder proposals filed with companies this season after the Securities and Exchange Commission (SEC) amended its no-action letter guidance in November 2021 to prevent the exclusion of proposals that concern “material” ESG factors1. However, average support for ESG measures dwindled from the record high of 41% for the year ending June 2021 to almost 33% for the year ending June 20222.

While average shareholder support for ESG resolutions may have tapered off, this does not mean investors failed to hold companies accountable for their ESG commitments. The number of resolutions achieving majority support rose to 40 in 2022 from 36 in 20213.

Additionally, votes against directors became more widespread, as investors avoided relying on shareholder proposals to express their views on ESG-related risk. Declining support was especially evident among the Russell 3000, where 65 directors failed to receive majority support, up from 53 and 62 both seasons prior4.

Third-Party Data Influencing Recent Voting Patterns

BlackRock, State Street, and Vanguard (the “Big Three”) command about 79% of all U.S. ETF assets5. Through the 2021 proxy season, the Big Three lent their support to a record number of ESG shareholder proposals. This past year, they turned their attention to directors, sending a clear message that directors who fail to maintain sufficient oversight of ESG issues risk being unseated.


Currently, ~25% of BlackRock’s assets under management (AUM) are invested in issuers with science-based targets or equivalent. The firm has set a goal of 75% of AUM by 2030. In the 2021 proxy season, BlackRock voted against 255 directors (up from 55 in 2020) and failed to support the management of 319 companies for climate-related reasons in 2021 (compared with 53 in 2020).

The firm began expanding the opportunity for certain clients to directly participate in proxy voting decisions in October 2021, and in 2022 made the following policy changes:

  • Blackrock now states voting against, rather than withholding voting from, directors related to companies’ negative performance and failure to disclose in re-elections.
  • Additionally, it added a significant section on board diversity and a mention of a dedicated risk committee within their proxy voting policy.
  • The section on financial reporting was expanded to include the importance of the transition to low carbon emissions.
  • A mention of ESG performance review criteria was added to the proxy voting policy.
  • The firm significantly revised the section on Executive compensation and benefit to include ESG criteria and added a section regarding compensation justifications.
  • The firm added sections on climate sustainability approaches and the use of specific metrics and expanded the section on global climate objectives and strategies and long-term net zero emissions business plans.
  • It added a substantial section on global net zero emissions, decarbonization, and greenhouse reduction targets.
  • The section on the promotion of corporate governance and business practices was shortened.

This year, Larry Fink released a letter highlighting a systematic change to proxy voting. According to Blackrock, the new options give institutional clients in separately managed accounts (SMAs) (but not pooled vehicles) the ability to exercise their voting decisions on the topics or at the companies that matter most to them. Most notably, Finks’ letter reinforced “this new ecosystem will also pose challenges for CEOs and their companies. Those of us who lead public companies will have a broader set of shareholders with whom to engage. Companies may need to develop new models of engaging with asset owners on their most important voting matters. This may take time to evolve.” In other words, the already complex world of proactive shareholder engagement just became more complicated, primarily because it now includes a broader range of stakeholders.

In the 2022 proxy season, general social topics as well as specific topics such as “Diversity and Employment” emerged as key areas of focus, per BlackRock’s votes on shareholder proposals. “Energy” and “Political Activities” decreased in the number of votes.


In 2021, Vanguard adopted a “Say on Climate”6 approach, requiring companies to publish annual disclosure of greenhouse gas emissions, progress on goals, & plans for reducing emissions and managing climate-related risks. This proposal also requests the right for shareholders to cast recurring votes on the company’s climate plan or report. A publication by Vanguard states, “In our view, boards are responsible for representing the interests of shareholders by ensuring they are familiar with material climate change-related risks, fostering debate and challenging management assumptions, and shaping informed decisions about company strategy and risk oversight”7. The firm plans to use engagements to better understand public company boards’ oversight of climate risks and opportunities, their climate mitigation plans, and whether their disclosures are effective and comprehensive, and provide shareholders with decision-useful information, including progress on the goals companies have set.

In 2022, Vanguard made the following policy changes:

  • Added a proxy voting policy section, specifying that Vanguard will look for companies to adopt good governance practices regarding director commitment.
  • Vanguard significantly expanded the sections on board diversity and disclosure and environmental and social disclosure.
  • Finally, Vanguard expanded the section on workforce diversity.

In the 2022 proxy season, general social topics as well as specific topics such as “Diversity and Employment” emerged as key areas of focus, per Vanguard’s votes on shareholder proposals. Votes on “Climate Change” topics also increased by 43%. “Energy” and “Political Activities” decreased in the number of votes.

To close out the year, Vanguard announced that it was withdrawing from the Net Zero Asset Managers Initiative, a sub-unit of the Glasgow Financial Alliance for Net Zero. Vanguard’s decision followed a “considerable period of review,” according to a company statement, which indicated that this action “will help provide the clarity our investors desire” about everything from the role of index funds to financial risks in the context of climate change8.

State Street

In 2021, State Street Global Advisers (“State Street”) announced that they planned to launch a targeted engagement campaign with the most significant emitters in their portfolio to encourage disclosure aligned with their expectations for climate transition plans. These expectations cover 10 areas including decarbonization strategy, capital allocation, climate governance, and climate policy. Capital allocation alignment was defined as the integration of climate considerations, capital expenditure on low-carbon strategies, carbon pricing, and investments in decarbonization. In 2022, the firm added a section outlining the role of the ESG Committee in the proxy voting process. Beginning in 2023, State Street plans to “hold companies and directors accountable for failing to meet [disclosure] expectations.”

Similar to the other Big Three, State Street voted on more general social topics and specific topics such as “Diversity and Employment” over the last year. “Charitable Donations” and “Climate Change” also increased in terms of the number of votes. Voting on “Energy” and “Human Rights” topics decreased.

What to Expect in 2023

It would be remiss to discuss trends in proxy voting without addressing the perspective of the proxy advisers, ISS and Glass Lewis. Asset managers, such as the Big Three, lean heavily on the guidance published by these advisers and vote in line with the guidance up to 90% of the time9.

Going into 2023, proxy advisers are stepping up their efforts on the climate front. Over the last year and a half, both Glass Lewis and Institutional Shareholder Services (“ISS”) have applied increasingly more scrutiny in their analyses of companies’ climate plans. This has resulted in increased adverse recommendations toward management-sponsored “say on climate” proposals10.

Changes to Proxy Voting Guidance

Below, we detail the most recent changes to the proxy voting guidelines published by ISS. Going into 2023, there will be increased scrutiny on disclosure of climate risks and targets, diversity across all levels of the organization (including at the board level), and director accountability.

Changes in 2023 Guidance Issued by ISS

  1. Disclosure of Climate Risks: Companies in the Climate 100+ focus group (“high emitting companies”) must adequately disclose climate risks (TCFD recommended).
  2. Greenhouse Gas (“GHG”) Reduction Targets: Companies in the Climate 100+ focus group (“high emitting companies”) must have reduction targets covering 95% of their Scope 1 and 2 emissions.
  3. For 2023, the definition of “appropriate GHG emissions reduction targets” has been strengthened to require more robust targets, namely,” medium-term GHG reduction targets or Net-Zero-by 2050 GHG reduction targets.”
  4. Racial Equity Audits: Companies will be expected to engage in racial equity audits on a case-by-case basis.
  1. Board Diversity: Board gender diversity now applies to all U.S. companies and requires at least one woman on the board.
  2. Problematic Governance Structures:
  3. Classified Board & Supermajority Requirements: Since 2015, ISS has generally recommended against director nominees at companies that have a classified board or supermajority voting requirements at the time of their initial public offering (“IPO”). The 2023 update clarifies that a “reasonable sunset provision” is no more than seven years from the date when the company had its IPO.
  4. Multi-Class Voting Structure: ISS will generally recommend against directors unless the multi-class structure is subject to a sunset provision of no more than seven years from the date of its IPO, regardless of when the company had its IPO.
  5. Director Accountability:
  6. Climate Governance: ISS will continue to recommend against the chair of the responsible committee (or other directors on a case-by-case basis) at “high emitting companies unless those companies provide climate-related disclosures and GHG reduction targets.”
  7. Exculpation Provisions: Exculpation provisions will be voted on a case-by-case basis.
  8. Political Spending: ISS created a new policy for proposals seeking disclosure of the alignment of a company’s political contributions with its stated values.
  9. ISS will evaluate such proposals case-by-case, and weigh factors such as the company’s “level of disclosure related to political contributions” and “disclosure regarding the reasons for its support of candidates.”

Changes in 2023 Guidance Issued by Glass Lewis

  • Climate Risk Disclosures and Climate Governance: Companies in the Climate 100+ should provide thorough climate risk disclosures (TCFD recommended) and boards are expected to have oversight.
  • Board oversight of E&S issues must be explicitly disclosed if a company is included in the Russell 1000 index and tracking of E&S issues will apply to all companies in the Russell 3000 index.
  • Board Diversity: Board gender diversity is now expected to be 30% within the Russell 3000 companies or includes a minimum of one woman on the board for other companies. Additionally, a minimum of one director from an underrepresented community is expected to be on the board at companies within the Russell 1000 index.
  • Exculpation Provisions: Glass Lewis will generally recommend voting against exculpation proposals eliminating monetary liability for breaches of duty of care for certain corporate officers.
  • Cybersecurity: Additionally, Glass Lewis published that they will be closely watching cybersecurity issues as they evolve throughout the year and will be voting on a case-by-case basis.

Preparing the Board for the 2023 Proxy Season

Companies must begin preparing for shifting tides during the 2023 proxy season. We expect to see an increasingly higher degree of support for ESG-related shareholder proposals and a larger number of directors voted against on the basis of lack of climate oversight. Management teams need to prepare their boards or risk being blindsided in 2023.

We recommend that management starts by ensuring that the board is aware that a new wave of ESG-related proposals is coming. This can include discussions during regularly scheduled meetings or even providing specific educational sessions for board members. The most successful companies start this process early and treat it as a continually evolving exercise.

Next, we recommend that management teams should focus on analyzing institutional investors’ proxy voting guidelines and the guidance put out by proxy advisers like ISS and Glass Lewis. This can help management teams identify the material issues that investors care about and ensure that ESG reports, supplementary policies and disclosures, andproxy language, address these issues.

It is essential to ramp up engagement efforts with institutional investors and stewardship teams. In engaging with institutional investors, it’s critical to be mindful that more investors are interested in ESG and as a result are expanding their stewardship teams or hiring ESG research analysts. Additionally, turnover on the buy side may mean that there are new sector and generalist portfolio managers to get in front of. Over the last three years, we’ve seen a trend of companies conducting governance roadshows and proactive outreach to investors’ stewardship teams not only ahead of proxy season, but also on an ongoing basis throughout the year. These meetings are used to educate not only stewardship teams but alsoportfolio managers on companies’ approach to ESG.

Increasingly, we are also seeing these investor engagements include members of the Board of Directors. Investors are beginning to expect board members to be able to talk fluently about the ESG issues a company is facing, why it is facing those issues, and what the company’s plans are to address them. Management teams can prepare their directors by ensuring they are well versed in the company’s ESG risks and opportunities, strategy and targets, and how the company compares to peers. Management teams can help ready directors for tough questions by conducting mock meetings and discussions.

Going into 2023, engagement strategies need to reach beyond just major institutional investors, to the LP and retail investor communities. Institutional investors’ clients are increasingly interested in ESG and are putting pressure onasset managers. Retail investors are also becoming influential due to changing generational sentiment around climate and social issues. Companies are starting to adopt strategies to engage and educate retail investors through social media, digital trading platforms, etc. It is important for companies to identify trends emerging across these additional stakeholder groups and adopt strategies for engaging with each group.

Lastly, to meet the expectations of investors in 2023, management will need to demonstrate clear board oversight and accountability related to ESG issues. This means developing and adopting a board-approved ESG strategy, clarifying the board’s role with respect to ESG, and consistently communicating the company’s ESG story.

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