State of Play: Proxy Season 2024

OVERVIEW

In this report, we zoom in on the emissions of the Russell 1000 (“R1000”), an index that comprises over 90 percent of US equity market capitalization (and over 40 percent of the value of global stock markets). R1000 companies were targeted in over 80 percent of the shareholder proposals CAS tracks.

The vast majority of the R1000’s Scope 1 (direct) and Scope 2 (purchased energy) emissions are generated by companies making up less than 10 percent of the index by market capitalization. Scope 3 (value chain) emissions are driven by companies representing just 15 percent of the value of the index.

That means investors can afford to take a tailored, company- and industry-specific approach to sustainability issues without compromising coverage of the index’s emissions. For the vast majority of the index, decarbonization will be a mostly passive process, driven by the falling emissions intensity of the electric grid.

Out of 68 companies with upcoming annual meetings that have been targeted by dissident proposals on climate issues, we highlight 21 companies based on a financial materiality screening approach, where we suggest investors heighten their due diligence and engagement on climate and energy issues, and consider support for dissident proposals when it is an appropriate escalation tactic.

In recent years, shareholder proposals have overwhelmingly focused on the financial, energy, consumer staples, and consumer discretionary sectors. By contrast, companies representing less than one-third of the Scope 1 and 2 emissions in the utilities, industrials, and materials sectors have been targeted.

Our findings resulted in the following recommendations for investors and activists:

• Greenhouse gas (GHG) emissions are an output, not an input, and requests for additional disclosure from corporates should isolate the key inputs that will drive emission reduction over time. For the 90 percent of the index (by value) that generates less than 20 percent of direct emissions, energy efficiency, clean power procurement, and management of non-CO2 GHGs are more important to track than emissions.
• The 10 percent of the index that generates the vast majority of emissions is heavily concentrated in electric utilities, oil and gas, and “hard to decarbonize” industries like steel, aluminum, and chemicals. Climate performance in these industries can be framed in terms of industry-specific playbooks without compromising coverage of the market’s overall emissions.
• For investors, support for shareholder proposals that hit on key topics can be used as an escalation tactic in ongoing engagement around these deeper drivers and metrics – it doesn’t need to be a verbatim endorsement of the text of the proposal.

In this report, we highlight 21 upcoming annual meetings where our benchmarking raises concerns about the pace of progress on energy intensity and emissions, and where dissident proposals on climate will be on the ballot.