PORTFOLIOS ON THE BALLOT 2024

Welcome to Portfolios on the Ballot 2024 (POTB), the first publication specifically designed to help investors vote their proxies on a systems-first basis. POTB flags initiatives designed to protect the social and environmental systems that support all the companies in a diversified portfolio. In short, we highlight initiatives that can protect your entire portfolio from the bad choices of individual companies.

POTB is published by The Shareholder Commons (TSC), a nonprofit organization dedicated to helping investors protect their common interests in the social and environmental systems upon which we all rely.

If you are interested in learning more or want to stay up to date:

Sign up for updates on upcoming votes.

Watch the POTB launch webinar (March 2024) replay here.

FREQUENTLY ASKED QUESTIONS

Because POTB is different from other proxy voting guides, we start with a few questions and answers:

WHAT DOES IT MEAN TO VOTE ON A “SYSTEMS-FIRST BASIS”?

Systems-first voting recognizes that overall market return is the most important factor in the financial performance of a diversified portfolio, and that market returns depend upon the systems that support the economy. See the Background section for a deeper dive into the financial rationale for systems-first voting, or watch this short video prepared by friends of TSC at Cambridge University, who use the term “universal ownership” to describe the same perspective.

HOW IS PORTFOLIOS ON THE BALLOT DIFFERENT FROM OTHER PROXY VOTING GUIDES?

POTB highlights campaigns supported by the rationale of protecting or improving the systems that support the economy, thereby enhancing the financial performance of any diversified portfolio. In contrast, most proxy analyses focus only on the effect that a vote has on the financial performance of the company where the vote is taken.

CAN YOU PROVIDE AN EXAMPLE?

One of the proposals we flag asks the Board of Alphabet (GOOG; GOOGL) to address risks from the use of artificial intelligence. Rather than simply arguing that this will lead to higher returns at Alphabet itself, the proponent argues, “We believe that shareholders, many of whom are widely diversified and may feel the impacts of the potential negative externalities of Alphabet’s AI activities throughout their investment portfolios, would benefit from improved oversight.” Another asks Shell PLC to align its greenhouse gas emissions targets with the goal of the Paris Agreement, arguing that “[a] vote for this proposal is warranted by investors who seek to ensure a long-term future for the Company and to protect the value of their entire investment portfolios.”

HOW CAN INVESTORS USE PORTFOLIOS ON THE BALLOT?

POTB includes a table that you can use to find upcoming meetings involving systems-first initiatives. The table allows you to sort these meetings by date, company, or subject matter; it can also be exported into a spreadsheet. The table contains links to the portion of POTB that describes each initiative and the systems-first arguments being made in favor of the proposal. More votes will be added to the table as the 2024 proxy season progresses, and we will provide a periodic update that alerts you to upcoming meetings that include systems-first initiatives. You can subscribe to the updates here.

DOES POTB INCLUDE RECOMMENDATIONS?

TSC does not generally make specific voting recommendations. However, we strongly believe that investors are best served if their proxy votes account for systemic impact. Accordingly, we do indicate how a shareholder who agreed with a proponent’s systemic argument would vote. This allows investors who use POTB to contrast that vote with the alternative decision they might make if they believed the proposal were contrary to the financial interests of the company in question and if they were concerned only with the impact of the vote on that company. In addition, POTB does include recommendations that shareholders vote FOR a number of proposals that The Shareholder Commons is actively supporting. TSC is not a proxy advisor, law firm, or investment advisor, and POTB does not constitute proxy advisory services, legal advice, or investment advice.

ARE ALL THE INITIATIVES INCLUDED IN POTB EXPRESSLY SUPPORTED BY SYSTEMS-FIRST ARGUMENTS?

POTB flags resolutions and other initiatives that expressly refer to the need for shareholders to reduce systemic risks to protect their diversified investments. In some situations, the proposal itself references diversified portfolios, while other shareholder campaigns have amplified (or plan to amplify) this argument in supportive materials such as proxy memos or exempt solicitations. As the proxy season progresses and those documents are published, POTB will be updated with such links in both the POTB narrative report and related spreadsheet provided below. In certain cases, a third party has provided systemic stewardship and diversified investor arguments in support for shareholder actions. In those cases, POTB identifies that third party as an Action Supporter.

WHAT IF I HAVE A SYSTEMS-FIRST PROPOSAL THAT ISN’T INCLUDED IN POTB?

Let us know! We will be updating POTB throughout the 2024 proxy season and providing updates on upcoming meetings to investors.

DOES POTB INCLUDE ALL THE 2024 SHAREHOLDER INITIATIVES WITH SYSTEMIC IMPLICATIONS?

No. In many cases, investors propose shareholder action that have important systemic implications, but only make the case that the initiative will increase value at the company where the vote takes place. We think that is a mistake, as we discuss in more detail in the Background section. One purpose of POTB is to demonstrate the efficacy of the systems-first argument to the investor community, and to encourage proxy voters to account for systemic concerns when voting on any matter, even if the supporting materials do not specifically reference portfolio effects.

CAN FIDUCIARIES VOTE ON A SYSTEMS-FIRST BASIS?

While we cannot provide legal advice, we can tell you that the arguments we flag in POTB are arguments for voting proxies to preserve and enhance the value of portfolios through systemic impact. One global law firm has explained why such voting is critical to diversified investors in a very long memo available here. We have tried to distill some of that learning in a memo available here. POTB does not constitute proxy advisory services, legal advice, or investment advice. TSC is not a proxy advisor, law firm, or investment advisor.

WHAT NEXT STEPS CAN I TAKE?

There are several ways to add systems-first perspective to your proxy voting:

  • Sign up for our periodic updates, allowing you to focus on pending meetings
  • Sign up for one of our webinars, and ask your colleagues to join us as well
  • Update your proxy voting guidelines with language that reflects the importance of systemic impacts
  • Make sure your advisors, including asset managers, proxy advisors, and consultants, are aware of your concern with the systemic impact of companies’ practices
  • Ask TSC to meet with colleagues or help you shape a systems-first argument for your own engagements
  • You may also be able to enlist a service provider to use POTB to vote your shares

If you want to begin reading about individual initiatives, you can skip to the 2024 Highlights and Systems-First Proxy Opportunities Section. If you would like to learn more about the concept of systems-first voting, you can read the Background Section, which immediately follows.

SYSTEM STEWARDSHIP RESOURCES

TSC has prepared case studies on climate change, antimicrobial resistance, and income inequality/living wages, addressing the need for investors to vote systemically on these issues. Readers interested in a deeper discussion of systems-first action can consult these studies or find a book-length treatment here.

Background

Modern investing requires diversification. Optimizing the financial risk and return of a portfolio requires broad diversification. This allows savers to earn the high returns available from risky assets (such as common stock), while diversifying away the risks that accompany concentration on one company or sector.

Diversification prioritizes overall market returns. This diversification means that the most important factor determining investment returns over the long term will be the return of the market itself, rather than whether any particular company in a portfolio does better or worse than the market.

Diversified investors considering systemic questions should prioritize overall market returns to protect their portfolios. When considering a vote that is linked to the performance of a social or environmental system, investors should ask, “How will my vote affect my overall return from the market?” because overall returns are what allow investors to meet their financial goals and liabilities.

Often, the answer to this broad question is the same as the answer to the narrow question, “What vote will optimize returns at the company in question?” For example, the answer to the question of whether to support a resolution favoring shareholder rights may be “yes” under either analysis, because those rights will create greater accountability, so that the company is more likely to protect shareholders’ financial interests, improving both company returns and total market returns.

For some systemic questions, however, the interests of individual companies are different from the interests of diversified shareholders have in optimizing overall market returns. It is not always the case that the vote that is best for company returns is best for portfolio returns. The strategy that maximizes cash flows for a company may involve the creation of social and environmental costs that threaten the systems that support the economy upon which diversified portfolios depend.

Shareholders can and should vote in their own interests (or the interests of their beneficiaries), even when those interests conflict with isolated company interests. Shareholder stewardship is not limited to advocacy designed to preserve or enhance a company’s long-term value: if a portfolio company creates social or environmental costs that threaten their overall portfolio returns, investors can (and should) use their stewardship tools to oppose such behavior, even if doing so could reduce enterprise value at an individual company.

Corporate leaders focus on managing enterprise risk but are not experts at managing systemic and portfolio risk. Leadership teams at companies occupy themselves with the management of enterprise risk – identifying, assessing, and managing risks for improved decision-making and business continuity for the company itself, meaning they only focus on the individual business opportunities and risks. When company interests diverge from diversified portfolio interests, shareholders are ideally situated to provide management with a portfolio perspective using their proxy votes.

Commercial Service Offers POTB-linked Voting Platform

Iconik

If you are interested in prioritizing systems-first voting to protect your diversified portfolio, there is at least one commercial service that now allows investors to build a voting policy that will default to voting FOR on proposals that are flagged in Portfolios on the Ballot, as well as AGAINST directors where a director campaign is flagged. iconik is a proxy voting platform that helps investors analyze their managers’ voting choices and build customized voting policies. Contact Alan Reid at iconik (alan@iconikapp.com) for more information.

Iconik uses the information that TSC makes publicly available through POTB to offer this service and not affiliated with or endorsed by TSC.

2024 Highlights:

TSC has collected over 60 shareholder initiatives that integrate arguments in the proposal or supporting materials that aim to address diversified investors’ common interests in a thriving economy. These initiatives illustrate the growing interest of investors in addressing environmental and social issues from a systemic perspective.

Highlights of this proxy season include:

  • Proposals designed to accelerate reductions in greenhouse gas emissions at Shell.
  • Proposals at Meta Platforms and Alphabet to improve oversight over the development of artificial intelligence.
  • Supporting TSC’s Antimicrobial Resistance (AMR) Guardrail, proposals at McDonald’s, Yum! Brands, and Restaurant Brands International address the abuse of antimicrobials in supply chains.
  • Proposals at Kroger, Walmart, and Target asking companies to pay workers a living wage or report on the impacts of failing to do so, including proposals supporting TSC’s Living Wage Guardrail.
  • Other matters include fair treatment of shareholder nominees, tax transparency, and conversion to benefit corporation status.
  • Nonprofit advocacy organization Majority Action has issued reports recommending voting AGAINST certain directors at companies that lag on climate change mitigation and FOR certain proposals it believes will advance racial equity through proxy voting. Majority Action’s underlying arguments in favor of these proposal include protection of the systems that support diversified portfolios.

This report, published in mid-March 2024, will be supplemented regularly as the proxy season progresses and more proposals and campaigns go to a shareholder vote.

2024 System Stewardship Proxy Opportunities

Immediately below, we present the heart of Portfolios on the Ballot: a table of 2024 proxy season votes that proponents contend will have broad systemic effects and a corresponding impact on diversified portfolio returns. The substance of these proposals addresses company practices that may impoverish the social and environmental systems that support investors’ broad portfolios.

You can expand the table in a separate window or download it as a separate spreadsheet (just click on the table at the bottom right.) The table is searchable and can be rearranged by category. This table and the corresponding narrative POTB report will be updated with proxy memos and other supportive materials as they are published throughout the proxy season.

Beneath the table are descriptions of each proxy action, arranged by category.

TSC is not a proxy advisor or investment advisor, and POTB does not constitute proxy advisory services or investment advice.

CLIMATE AND BIODIVERSITY

CLIMATE CHANGE INCREASES PORTFOLIO RISK FOR ALL INVESTORS

The failure to address the climate crisis presents a dire threat to long-term, diversified investors. While individual companies may be able to improve profits by emitting carbon well beyond the limits of the Paris Accords, a failed transition would mean that the average portfolio could suffer a 30% reduction in returns over the next 40 years compared to a Paris-compliant scenario. As stated in TSC’s case study on climate change:

the relationship between GHG emissions and long-term returns of diversified portfolios . . . shows why shareholders can and must steward companies away from GHG trajectories that threaten the climate system, regardless of the impact such stewardship has on individual company enterprise value.

The case study, Climate Change & the Engagement Gap: Why Investors Must Do More than Move the Needle, and How They Can, addresses the climate risk to diversified portfolios in detail.

SHAREHOLDER CAMPAIGNS:

Align GHG Emissions Reduction Targets to Paris Agreement. COMPANY: Shell (SHEL)

FILERS: Follow This and twenty-seven institutional investors with €4 trillion in assets under management, including Amundi, Scottish Widows, and Candriam. View press release for details.

SHAREHOLDER MEMO (if applicable):

Action Item: Twenty-seven institutional investors, who collectively manage more than US$4.2 trillion in assets and who own close to 5% of the company’s stock, co-filed a resolution at Shell PLC, asking the company to align its medium-term greenhouse gas emissions reduction targets for Scope 3 (usage of products) with the goal of the Paris Agreement (limiting global warming to well below 2°C and pursuing efforts to limit temperature increases to 1.5°C above pre-industrial levels).

Impact on Diversified Shareholders: Scope 3 emissions include emissions by customers, which make up the bulk of emissions generated by fossil fuel producers such as Shell. Many investors believe that such producers cannot address their role in creating the economic risks arising from the climate crisis without managing their Scope 3 emissions. This proposal may thus be considered critical to managing emissions that could negatively affect diversified portfolios. The supporting statement argues, “[a] vote for this proposal is warranted by investors who seek to ensure a long-term future for the Company and to protect the value of their entire investment portfolios.”

Bottom Line: Diversified investors who believe that fossil fuel producers must take responsibility for their Scope 3 emissions to protect the value of portfolios can vote FOR this proposal to encourage Shell to account for its customers’ emissions.

Report on corporate climate lobbying in line with Paris Agreement. Company: PACCAR, Inc. (PCAR)

FILER: Calvert Research and Management and the Comptroller of the City of New York

SHAREHOLDER MEMO (if applicable): Exempt Solicitation (Calvert)

Action Item: A proposal at PACCAR asks the company board to conduct an annual evaluation and issue a report on how PACCAR lobbying and policy influence activities align with the goal of the Paris Agreement to limit average global warming to “well below” 2°C above pre-industrial levels and how PACCAR plans to mitigate the risks presented by any misalignment.

Impact on Diversified Shareholders: The exempt solicitation filed by Calvert Research and Management describes a disconnect – that PACCAR made a public commitment to lobbying in support of the Paris Agreement but has, in fact, done the opposite. There are “numerous examples in the public record,” the solicitation states, of the company or its trade association (Truck and Engine Manufacturers Association) opposing state and federal policy or regulatory proposals to reduce GHG emissions and speed the adoption of zero emissions trucks.

The exempt solicitation  explains that “delays in the implementation of the Paris Agreement increase the physical risks of climate change, pose a systemic risk to economic stability, and introduce uncertainty and volatility into our portfolios”and that “investors view progress in reducing greenhouse gas (“GHG”) emissions as an imperative to discharging their fiduciary duties, as climate scenarios of 3°C or more equal market chaos.” [emphasis added] The exempt solicitation further argues that “Paris-aligned climate lobbying helps to mitigate risk and contributes positively to the long-term value of our investment portfolios [but that u]nfortunately, trade association lobbying on behalf of companies too often presents obstacles to progress in creating a conducive environment for real economy decarbonization.”

Bottom Line: Aggregate company lobbying expenditures reached US$4.26 billion in 2023 – higher than any prior year according to Statista – representing a significant influence over policymakers in U.S. government agencies in pursuit of policies that favor companies but do not necessarily benefit society or the economy. Diversified investors who believe that  lobbying that undermines the real economy decarbonization necessary to protect their portfolios may want to vote FOR this resolution.

Report on Climate Transition Planning. COMPANIES: Bank of America (BAC), JP Morgan Chase Bank (JPM), Morgan Stanley (MS)

LEAD FILER: As You Sow

CO-FILER(S): Arjuna Capital (Bank of America, JP Morgan Chase)

SHAREHOLDER MEMO (if applicable):

Action Item: These proposals press financial institutions to evaluate and disclose the proportion of client emissions that come from clients that are not on a pathway to meet a 1.5°C goal and how the companies plan to meet their own emissions reduction targets in light of this information.

Impact on Diversified Shareholders: The proposals raise the concern that these leading banks, with trillions of dollars in assets under management and holding billions of dollars in long-term debt to a wide variety of industries and sectors, are supporting clients who are not reducing emissions on a trajectory sufficient to address the risks that climate change poses to the economy. The proposal questions how these banks will meet their own emission reduction targets without understanding their clients’ emissions trajectory. In the words of the supporting statement for the Bank of America proposal, “[f]ailure to meet targets also contributes to systemic climate risk to harm investors’ portfolios.”

Bottom Line: By raising the specific concern that these banks are pursuing business that contributes significantly to climate risk, these proposals address risks that could threaten investors’ entire portfolios. The proponents are asking diversified shareholders to vote FOR these proposals to account for these risks to their portfolios.

Deep-Sea Mining. COMPANIES: General Motors (GM) and Tesla (TSLA)

LEAD FILER: As You Sow

SHAREHOLDER MEMO: Exempt Solicitation (Tesla); Exempt Solicitation (GM)

Action Item: These proposals at General Motors and Tesla ask the companies to address the effects of deep-sea mining on global ecosystems. At General Motors, the proposal seeks disclosure of the company’s policies on the topic, while the proposal at Tesla seeks a moratorium on deep-sea mining or an explanation why the company cannot commit to such a moratorium.

Impact on Diversified Shareholders: The proposals explain that deep sea mining for mineral deposits can be devastating to marine ecosystems, and that destruction of these habitats and ecosystems can affect systemic issues such as food supply and the ocean’s ability to absorb carbon dioxide that would otherwise contribute to climate change. These systemic risks may threaten the long-term value of diversified portfolios.

Although the proposals and supporting statements do not refer to the impact deep-sea mining has on diversified portfolios, we understand the filer intends to address the risks to diversified shareholders in materials it will distribute in support of these proposals.

Bottom Line: Diversified investors who believe extraction of deep-sea minerals by these companies threatens systems that are critical to protecting the value of diversified portfolios can vote FOR this proposal to protect long-term financial returns.

Request to Become a Benefit Corporation. COMPANY: Dominion Energy (D)

LEAD FILER: Ruth McElroy Amundsen

SHAREHOLDER MEMO (if applicable): Exempt Solicitation

Action Item: This proposal asks Dominion Energy to take the steps needed to amend its articles of incorporation to become a Benefit Corporation.

Impact on Diversified Shareholders: The “benefit corporation” is a legal structure that serves as an alternative to the conventional for-profit corporation. Benefit corporations are required to consider positive social and environmental impact as a goal, alongside of earning profits. The proposal suggests that Dominion’s status as a conventional Virginia corporation may be a cause of the company’s attempts to throttle the development of new solar projects that would serve to reduce excess carbon emissions. In other words, the company may be pursuing profits at the expense of the broader economy. As the supporting statement explains:

Even if the Company believed that slowing its own climate transition enhances financial performance, failure to address climate change harms its diversified shareholders, who depend upon healthy systems to support the economy in which their investments are embedded: a warming planet will create serious economic costs globally, and lowered GDP will directly reduce returns to diversified investors.

Bottom Line: Diversified investors who believe the structure of a conventional Virginia corporation interferes with the company’s ability to manage its climate impact can vote FOR this proposal asking the company to become a benefit corporation.

Managing Climate Risk by Setting Science-Based Targets. COMPANIES: Illinois Tool Works (ITW), W. W. Grainger (GWW)

LEAD FILER: Arjuna Capital

CO-FILER(S): First Affirmative (Illinois Tool Works)

SHAREHOLDER MEMO (if applicable):

Action Item: These proposals ask the companies to issue near- and long-term science-based greenhouse gas reduction targets aligned with the Paris Agreement’s 1.5°C goals, including both operational and supply chain emissions related to the company.

Impact on Diversified Shareholders: According to the proposals, these companies neglect Scope 3 emissions and lack climate plans. Scope 3 emissions come from both upstream emissions (such as transportation of materials to facilities, waste generated in operations, business travel, and commuting) and downstream emissions (such as distribution, transportation, and end-of-life treatment for products). The UN Global Compact estimates that more than 70% of a company’s total emissions can be attributed to Scope 3 categories. For this reason, many investors believe economic risks created by climate change cannot be adequately addressed without action by companies to measure and manage their Scope 3 emissions. As the supporting statement for the Grainger proposal puts it:

Every incremental increase in temperature above 1.5 degrees will increase physical, transition, and systemic risks for companies and investors alike… Up to 10 percent of global economic value could be lost by 2050.

Bottom Line: These proposals highlight the risk failure to manage Scope 3 emissions poses to the economy broadly, and thus to diversified shareholders. Proponents believe voting FOR these proposals will encourage the companies to create and implement emissions reduction plans that will reduce long-term risk to diversified portfolios.

Publish a Just Transition Report. COMPANY: Kroger (KR)

LEAD FILER: Domini Impact Investments

SHAREHOLDER MEMO (if applicable):

Action Item: This proposal asks Kroger to publish a just transition report related to assessing and addressing the impacts of climate change and ensuring fundamental labor protections are upheld for workers in the agricultural supply chain. This proposal seeks consistency with the International Labour Organization’s just transition guidelines.

Impact on Diversified Shareholders: As defined by the UN, the term “just transition” refers to “ensuring that no one is left behind or pushed behind in the transition to low-carbon and environmentally sustainable economies and societies.” The European Bank for Reconstruction and Development further explains that “a just transition seeks to ensure that the substantial benefits of a green economy transition are shared widely, while also supporting those who stand to lose economically – be they countries, regions, industries, communities, workers or consumers.” The proposal at Kroger identifies farmworkers as a significantly at-risk group in the company’s supply network and mentions the supply chain risk related to failure to adapt to these climate change risks: “Farmworkers face heightened climate related risks, including heat related illness and death, exhaustion and heat stress, mental health stressors, increased pesticide exposure, as well as other severe human rights violations including forced labor.”

Failure to manage a just transition contributes to inequality, and as discussed in the sections of POTB addressing payment of living wages, inequality threatens the value of the economy overall, which in turn threatens the value of diversified portfolios. Although the text of this shareholder proposal does not refer to the impact a just transition may have on diversified portfolios, we understand the filer intends to address the risks to diversified shareholders in materials it will distribute in support of this proposal.

 Bottom Line: Diversified investors concerned about the risk to their portfolios posed by the failure of Kroger to manage a just transition for workers in its supply chain can vote FOR this proposal.

Conduct and Disclose a Biodiversity Impact and Dependency Assessment. COMPANY: The Home Depot (HD)

LEAD FILER: Domini Impact Investments

SHAREHOLDER MEMO: Exempt Solicitation

Action Item: This proposal requests the company conduct and disclose an assessment related to the company’s impact and dependency on biodiversity, including the full value chain and use of its products sold.

 Impact on Diversified Shareholders: The proposal states, “nature and biodiversity are systemically important to climate, livelihoods, Indigenous Peoples’ rights, and thriving economies,” and underpins both the satisfaction of basic human needs as well as the health and safety of society’s workforce. For diversified investors, the proposal identifies numerous connections between the economy and issues related to nature and biodiversity:

The World Economic Forum ranks biodiversity loss and ecosystem collapse among the four most severe global risks, and the World Bank estimates the collapse of ecosystem services could result in an annual global GDP decline of $2.7 trillion. While the World Economic Forum estimates that over half of the world’s GDP is moderately or highly dependent on nature and its services, all of the world’s GDP is dependent on nature to some extent.

As discussed elsewhere in POTB, reductions in GDP can translate directly into reduced value for diversified portfolios. Although the text of this shareholder proposal does not refer to the impact of biodiversity loss on diversified portfolios, we understand the filer intends to address the risks to diversified shareholders in materials it will distribute in support of this proposal.

 Bottom Line: Diversified investors who believe that biodiversity loss may increase risk in their portfolios can vote FOR this proposal.

Oil & Gas - 1.5°C Misalignment. Companies: ConocoPhillips (COP), ExxonMobil (XOM), Occidental Petroleum (OXY)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: Proxy Voting for a 1.5°C World; Exempt Solicitation (Exxon)

Action Item: Majority Action has issued a proxy voting guide identifying climate laggards in the energy, utilities, and financial service industries and recommending votes against some or all the directors of such companies. Majority Action believes that voting on board elections is the most powerful tool available to shareholders and that it is appropriate to use such votes to hold directors accountable when companies are not transforming their businesses in line with a 1.5°C scenario.

Majority Action’s proxy voting guide recommends that shareholders: VOTE AGAINST ALL BOARD MEMBERS at the above three oil & gas companies due to the companies’ failure to set medium-term GHG reduction targets covering at least 95% of scope 1 and 2 emissions and relevant scope 3 emissions.

Impact on Diversified Shareholders:  Majority Action reports that 2023 was the hottest year on record but will likely be the coolest going forward given the advancement of climate change. In its model proxy voting language, Majority Action explains why the climate issues it focuses on threaten the portfolios of diversified shareholders:

The physical and financial risks posed by climate change are systemic, portfolio-wide, and undiversifiable. Therefore, the actions of companies that directly or indirectly impact climate outcomes pose risks to the financial system as a whole, and to our entire portfolio. To protect the value of our portfolio as a whole, we will hold boards accountable at portfolio companies that fail to adhere to scientific recommendations needed to limit warming to 1.5°C over preindustrial levels by the end of the century.

Bottom Line: The board’s role is to oversee company management. Investors concerned that the directors of these oil & gas companies are not protecting the interests of shareholders in their diversified portfolios can consider voting AGAINST (INCLUDING BY WITHOLDING votes from) each of these directors.

O&G and Electric Utilities – 1.5°C Misalignment. Companies: American Electric Power (AEP), Chevron (CVX), Berkshire Hathaway (BRK), Dominion Energy (D), NRG Energy (NRG), Southern Company (SO), WEC Energy Group (WEC)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: Proxy Voting for a 1.5°C World

Action Item: As explained above, Majority Action is recommending votes against directors at climate laggards in the energy, utilities, and financial service industries when companies fail to transform their businesses in line with a 1.5°C scenario.

Majority Action’s proxy voting guide recommends that shareholders: VOTE AGAINST THE CHAIR AND/OR LEAD INDEPENDENT DIRECTOR, AND RELEVANT COMMITTEE CHAIRS at the above one oil and gas company and six electric utilities based on the following criteria:

  • The oil & gas company’s potential future investments on new upstream oil & gas projects exceeds the IEA’s Announced Pledges Scenario (APS, >1.7°C) allowance,
  • The electric utilities either (1) omit relevant scope 3 emissions from ambitions for 2050 net zero GHG emissions or medium-term GHG target, or (2) maintain planned fuel capacity that exceeds the IEA’s Announced Pledges Scenario (APS, >1.7°C) allowance.

Impact on Diversified Shareholders: As reported above, Majority Action’s asserts that the climate issues it focuses on threaten the portfolios of diversified shareholders.

Bottom Line: The board’s role is to oversee company management. Investors concerned that the directors of this oil & gas company and these electric utilities are not protecting the interests of shareholders in their diversified portfolios can consider voting AGAINST (including by WITHHOLDING votes from) each of these lead independent directors and committee chairs.

Electric Utilities, Banks, Insurers – 1.5°C Misalignment. COMPANIES: Bank of America (BAC), Berkshire Hathaway (BRK), Chubb (CB), Duke Energy (DUK), FirstEnergy (FE), Goldman Sachs (GS), JPMorgan Chase (JPM), PPL (PPL), The Hartford (HIG), Travelers (TRV), W.R. Berkley (WRB)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: Proxy Voting for a 1.5°C World

Action Item: As explained above, Majority Action is recommending votes against directors at climate laggards in the energy, utilities, and financial service industries when companies fail to transform their businesses in line with a 1.5°C scenario.

Majority Action’s proxy voting guide recommends that shareholders: VOTE AGAINST THE RELEVANT COMMITTEE CHAIR(S) at the above three utilities, three banks, and five insurers under the following circumstances:

  • The electric utility’s InfluenceMap “Real-world climate policy engagement” score is below a (C-), indicating significant misalignment to the Paris Agreement,
  • The bank either (1) has failed to set sector-specific oil & gas targets for its financed emissions in terms of absolute emissions or (2) has no exclusion policies for fossil fuel projects, or
  • ­The insurer has not disclosed its insurance-associated emissions.

Impact on Diversified Shareholders: As reported above, Majority Action’s asserts that the climate issues it focuses on threaten the portfolios of diversified shareholders.

Bottom Line: The board’s role is to oversee company management. Investors concerned that the directors of these electric utilities, banks, and insurers are not protecting the interests of shareholders in their diversified portfolios can consider voting AGAINST (including by WITHHOLDING votes from) each of these committee chairs.

DISINFORMATION & AI

ARTIFICIAL INTELLIGENCE BRINGS OPPORTUNITIES AND CRITICAL RISKS

The rapid development of generative Artificial Intelligence (AI) has the potential to heighten significant risks related to disinformation, wealth inequality, and human rights violations. These factors threaten critical systems that undergird diversified portfolios and should be weighed by shareholders using their governance rights to protect the value of those portfolios.

SHAREHOLDER CAMPAIGNS:

Report on Generative Artificial Intelligence Misinformation and Disinformation Risks. COMPANIES: Alphabet (GOOG, GOOGL) and Meta Platforms (META)

FILERS: Arjuna Capital, Open MIC, Eko

SHAREHOLDER MEMO: Exempt Solicitation (Meta); Exempt Solicitation (Alphabet) – Arjuna; Exempt Solicitation (Alphabet) – OpenMIC

Action Item: These proposals seek reports from the boards on each company’s role in facilitating misinformation and disinformation generated, disseminated, and/or amplified by the company’s AI. The proposals specifically seek information not only on risks to the companies but also to “public welfare,” and request descriptions of the companies’ plans to remediate harms and measure effectiveness of those efforts.

Impact on Diversified Shareholders: The proposals reference concerns of high “political risk,” “inaccurate and invented information,” and the enablement of “precise ad targeting that could propagate disinformation among voters.” The ICT for Peace Foundation compares the spread of mis/disinformation online to “industrial pollutants that harm the environment” because just as environmental damage becomes an externality for polluters that do not bear the full cost, “social media platforms benefit financially from the engagement generated by misinformation without accounting for its societal impact.” While the proposals do not explicitly address the risks misinformation poses to a healthy global economy or the diversified portfolios that depend on it, we understand the filer intends to address the risks to diversified shareholders in materials it will distribute in support of these proposals.

Bottom Line: Diversified investors who believe these technology companies must deploy AI with particular care to protect the global economy (and thus their own portfolios) from the risks of misinformation can vote FOR these proposals to encourage Alphabet and Meta to account for these risks.

AI Principles and Board Oversight. COMPANY: Alphabet (GOOG, GOOGL)

LEAD FILER: Trillium Asset Management

SHAREHOLDER MEMO: Exempt Solicitation

Action Item: This proposal asks Alphabet to amend the charter of the company’s Audit and Compliance Committee to include responsibilities around the implementation of AI. The company’s AI Principles include seven commitments, including “be socially beneficial,” “avoid creating or reinforcing unfair bias,” be tested for safety, be accountable to people, and incorporate privacy into design.

Impact on Diversified Shareholders: The proposal references public reporting on Alphabet’s rollout of AI and the protection of children, which the proponent points to as suggesting the need for board-level oversight. The proposal also expressly describes the benefits of improved oversight to diversified shareholders, as quoted in the sidebar.

Bottom Line: The proposal is supported by arguments that failure to take care in developing such AI poses a threat not just to the companies where the proposals have been filed, but to diversified portfolios. Investors concerned about these threats can vote FOR this proposal to encourage Alphabet to account for these risks.

FAIR WAGES AND ECONOMIC EQUALITY

WEALTH INEQUALITY THREATENS DIVERSIFIED INVESTOR RETURNS

Current levels of poverty wages and inequality threaten the global economy with losses that will burden investment portfolios over the next 30 years and beyond. Conversely, higher wages lead to increased productivity and consumption in a virtuous macroeconomic cycle that benefits investment portfolios. Corporate behaviors such as tax avoidance, compensating workers below levels that can sustain basic needs, and ignoring human rights violations in their supply chains exacerbate existing levels of income inequality and threaten investors’ diversified portfolios, which will internalize the costs these behaviors impose on critical systems that undergird the economy. The risks low wages and inequality pose to diversified shareholders are discussed at length in our case study, Living Wage & the Engagement Gap Using a Systems Lens to Build Portfolio Value Through Improved Wages.

SHAREHOLDER CAMPAIGNS:

Establish living wage compensation policy that optimizes portfolio value for Company shareholders. COMPANIES: Kroger (KR); Target (TGT); Walmart (WMT)

LEAD FILER: Legal & General Investment Management (LGIM) (Walmart, Target, Kroger); Nathan Cummings Foundation (Walmart); Zevin Asset Management (Kroger)

SHAREHOLDER MEMO: Exempt Solicitation -Target; Exempt Solicitation – Walmart; Exempt Solicitation – Kroger

SUPPORTIVE INFORMATION: Majority Action has issued a proxy voting guide, Proxy Voting for Racial Equity, that recommends shareholders vote FOR these proposals at Walmart and Target.

Action Item: These proposals ask each company to establish wage policies that provide workers with minimum earnings necessary to meet a family’s basic needs (a living wage) “because Company compensation practices that fail to provide a living wage are harmful to the economy and therefore to the returns of diversified shareholders.”

These proposals are part of TSC’s efforts to encourage investors to support a living wage guardrail, as described here.

Impact on Diversified Shareholders: These proposals provide evidence to demonstrate the benefit to diversified shareholders of closing wealth gaps. For example, the supporting statements cite 2020 research that found that if key racial gaps for Black Americans (such as wages, education, housing, and investment) had been closed in 2000, US$16 trillion could have been added to the U.S. economy. The same study found that closing those gaps in 2020 could have added US$5 trillion to the U.S. economy over the ensuing five years. As TSC details in our living wage case study, failing to pay people adequately exacerbates income inequality, which stunts the nation’s economic growth by decreasing disposable income and damaging individuals’ health and well-being, among other factors.

As the supporting statements say, “[t]he costs and risks created by low wages and inequality will directly reduce long-term diversified portfolio returns because a drag on GDP directly reduces returns on diversified portfolios.”

Bottom Line: These proposals make a direct case that diversified shareholders should support the payment of a living wage by these companies to preserve the value of their portfolios, because paying a living wage protects overall market returns by preserving the economy. Investors should vote FOR these proposals.

Freedom of Association and Collective Bargaining. COMPANIES: Amazon (AMZN); Delta Airlines (DAL); Maximus (MMS); Tesla (TSLA)

FILERS: Shareholder Association for Research & Education (SHARE) (Amazon); As You Sow (Delta); SOC Investment Group and Service Employees International Union (SEIU) (Maximus); Shareholder Association for Research & Education (SHARE), Domini, SOC Investment Group (Tesla)

ACTION SUPPORTER: Majority Action

PROXY MEMO OR SUPPORTIVE INFORMATION: Proxy Voting for Racial Equity; Proxy Voting for Racial Justice; Exempt Solicitation (Amazon); Exempt Solicitation (Delta); Exempt Solicitation (Tesla)

Action Item: These proposals ask the company to adopt and disclose a non-interference policy that upholds the right to freedom of association and collective bargaining, in line with International Labour Organization standards. Majority Action’s voting guide recommends a vote FOR these proposals.

Impact on Diversified Shareholders: Economic Policy Institute research demonstrates that unions “help reduce disparities and strengthen our democracy” and “counteract disparate labor market outcomes by race and gender that result from occupational segregation, discrimination, and other labor market inequities related to structural racism and sexism.” TSC’s own case study on the living wage gap highlighted the fact that closing inequalities like these could significantly benefit the economy: “closing the living wage gap worldwide could generate significant increases in the well-being of workers, leading to a more than 4% increase in global GDP.”

Majority Action’s report identifies racial equity as an issue that “poses idiosyncratic and systematic risks that depress returns for long-term diversified investors.” Related to unionizing specifically, the voting guide points to research that shows that “labor unions help to reduce centuries of entrenched racial disparities in wages, healthcare access, and economic security.” Lastly, the guide comments that given the role that unions play in closing the racial wealth gap, “addressing fundamental labor rights in stewardship is one way for investors to mitigate the systemic risks of racialized inequality.” 

While the proposal at Tesla does not reference effects on diversified shareholders, we understand that the shareholder proponents intend to file an exempt solicitation in support of the proposal that will address impacts on diversified portfolios.

Bottom Line: Diversified investors who believe that support for labor unions and freedom of association may benefit their investments can consider voting FOR these proposals.

Living Wage Report. COMPANIES: Amazon.com (AMZN); The Home Depot (HD)

LEAD FILER: Zevin Asset Management

SHAREHOLDER MEMO (if applicable):

Action Item: These proposals ask each company to oversee the preparation of a living wage report intended to provide investors with information they can use to assess the company’s compliance with international human rights standards related to wages. The proposals also ask that each company assess systemic risks stemming from income inequality.

Impact on Diversified Shareholders: The proposals argue that high levels of income inequality threaten diversified investor portfolios “by slowing economic growth, limiting upward mobility, and exacerbating political polarization.” The supporting statements argue that closing the living wage gap could increase global GDP by as much as 4% per year.

Bottom Line: The filer is seeking support for these proposals based, in part, on the threat such wages pose to diversified portfolios. Investors concerned with the impact low pay has on their diversified portfolios—even if profitable when viewed through from the narrow perspective of an individual employer—can address that concern by voting FOR these proposals.

Racial Equity Audit or Civil Rights Audit. COMPANIES: Marriott International (MAR); PepsiCo (PEP); Walmart (WMT); Wendy's (WEN)

FILERS: Marriott International (Trillium Asset Management); The Nathan Cummings Foundation (PepsiCo), United for Respect, Adrian Dominican Sisters, CommonSpirit Health, Daughters of Charity, Province of St. Louise (Walmart); Franciscan Sisters of Allegany, NY (Wendy’s)

ACTION SUPPORTER: Majority Action

SUPPORTIVE MATERIALS: Proxy Voting for Racial Equity; Proxy Voting for Racial Justice; Exempt Solicitation (PepsiCo); Exempt Solicitation (Walmart)

Action Item: Majority Action has issued a proxy voting guide on racial equity that recommends shareholders vote FOR proposals on racial equity audits, civil rights audits, and/or third-party racial equity audits at Marriott, PepsiCo, Walmart, and Wendy’s.

Impact on Diversified Shareholders: Majority Action’s Equity in the Boardroom Report identifies racial equity as an issue that “poses idiosyncratic and systematic risks that depress returns for long-term diversified investors.”

For the proposal at Walmart, Majority Action’s voting guide explains that Walmart is the largest private sector employer of Black and Latine people while it also serves many communities of color. Citing a study that points to discrepancies in Walmart’s customer service that reproduce racial and socioeconomic disadvantage, Majority Action’s guide states that a racial equity audit could assist Walmart in identifying how it can better serve the needs of the BIPOC community. Majority Action’s voting guide further states that “[f]iduciaries must adopt a racial equity lens to proxy voting in order to effectively mitigate these risks, which cannot simply be diversified away.”

In additional supportive information shared with TSC, Majority Action explained that Walmart is the U.S.’s largest retailer, its largest grocer, its largest importer of consumer goods, and its largest private employer of Black workers. Majority Action also explains that Walmart’s corporate practices and policies set the standard and have far-reaching effects on not just the low-wage labor market, but also the retail, grocery, and logistics industries and that a rigorous and comprehensive racial equity audit could identify and address racial disparities at not just Walmart but also at suppliers and competitors, unlocking opportunities for equitable value creation across the economy that would benefit diversified investors generally.

Bottom Line: The existing significant racial wealth gap in the U.S. constrains the economy. Diversified investors who believe that a racial wealth gap may be harmful to their investments can consider voting FOR these proposals.

Tax Transparency. COMPANIES: Chevron (CVX), ExxonMobil (XOM)

LEAD FILER: Oxfam America

CO-FILER(S): KLP, Folksam, Benedictine Sisters of Mount St. Scholastica (both XOM and CVX); Nordea, Benedictine Sisters of Baltimore, Benedictine Sisters of Boerne Texas, and the Province of Saint Joseph of the Capuchin Order (XOM).

SHAREHOLDER MEMO: Chevron (Oxfam America)

Action Item: These proposals, filed by numerous proponents including Nordea, a European asset manager with approximately EUR400 billion under management, ask each company to issue a tax transparency report prepared using indicators and guidelines set forth in the Global Reporting Initiative’s (GRI) Tax Standard.

Impact on Diversified Shareholders: The shareholder proposals refer readers to the GRI Tax Standard, which explains that “taxes… are a key mechanism by which organizations contribute to the economies of the countries in which they operate.” Furthermore, the lead filer’s public statement cites a 2023 report that public country-by-country reporting (PCbCR) could reduce tax revenue losses attributed to cross-border profit shifting by US$311 billion.

These losses have an economic impact, as governments require revenue to function effectively. The EU Tax Observatory estimates that countries may experience a loss of up to 1.32% of GDP annually due to corporate profit shifting. Diversified portfolios may absorb these economic losses. Although the text of these shareholder proposals does not refer to the impact tax avoidance has on diversified portfolios, we understand the lead filer intends to address the risks to diversified shareholders in materials it will distribute in support of these proposals.

Bottom Line: Investors concerned with the impact tax avoidance may have on their diversified portfolios can consider voting FOR these proposals.

Voting Against Certain Directors with All-White Boards. COMPANIES: Hexcel Corp. (HXL), Yeti Holdings (YETI), Hertz Global Holdings Inc (HTZ)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: 2024 Proxy Voting for Racial Justice

Action Item: Majority Action has issued a proxy voting guide identifying S&P 500 and Russell 1000 companies where the board of directors has zero members that are people of color. Specifically, Majority Action recommends voting against:

  • Cynthia M. Egnotovich, Chair of the Nominating, Governance, and Sustainability Committee at Hexcel Corporation,
  • Alison Dean and Robert Katz, members of the Nominating and Governance Committee at Yeti, and
  • Andrew Shannahan, Chair of the Governance Committee at Hertz.

Impact on Diversified Shareholders: Majority Action’s Voting Guide in 2024 describes that:

Besides being a moral failing, racial inequity poses a range of risks that depress returns for long-term diversified shareholders. Fiduciaries must adopt a racial equity lens to proxy voting in order to effectively mitigate these risks, which cannot simply be diversified away.

This recommendation from Majority Action is part of their broader efforts to motivate racial justice actions through proxy voting as described in their 2023 Equity in the Boardroom report and their 2024 Proxy Voting for Racial Justice.

Bottom Line: Diversified shareholders who believe that promoting racial and ethnic diversity on the board of directors may lead to future portfolio growth may want to vote FOR this resolution.

Workplace and Gun Safety. COMPANY: Walmart (WMT)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: Proxy Voting for Racial Equity; Exempt Solicitation

Action Item: Majority Action has issued a proxy voting guide on racial equity that recommends shareholders vote FOR the workplace and gun safety proposal at Walmart filed by United for Respect, Bon Secours, Mercy Health.

Impact on Diversified Shareholders: Majority Action’s voting guide explains that BIPOC workers experience higher rates of work-related diseases, injuries, and psychological stress compared to their white counterparts and that nearly half of Walmart’s hourly associates are people of color. According to the guide, those associates have raised concerns about both workplace safety issues and violence from customers and coworkers, identifying this issue as both one related to systemic racism and the physical and mental health of the public.

Majority Action’s report identifies racial equity as an issue that “poses idiosyncratic and systematic risks that depress returns for long-term diversified investors.” The voting guide further states that “[f]iduciaries must adopt a racial equity lens to proxy voting in order to effectively mitigate these risks, which cannot simply be diversified away.”

Bottom Line: Diversified investors who believe that harm to the physical and mental health of workers, especially employees of color, may be harmful to the shareholder’s diversified investments can consider voting FOR this proposal.

ASSET MANAGER VOTING

BRINGING SYSTEMS-FIRST PROXY VOTING TO LARGE ASSET MANAGERS

Many financial institutions manage portfolios for institutional and individual clients, most of whom diversify their portfolios to optimize risk and return. These clients are at risk if asset managers only consider the impact their voting has on individual companies, and all investors are at risk if the financial industry fails to recognize the importance of system stewardship and systems-first voting to investors.

SHAREHOLDER CAMPAIGNS:

Proxy Voting Alignment. COMPANIES: Goldman Sachs Group (GS), JP Morgan Chase (JPM)

LEAD FILER: The Maryknoll Sisters of St. Dominic (JP Morgan Chase); Presbyterian Church (Goldman Sachs)

CO-FILER(S): Benedictine Sisters of Mount St. Scholastica (JP Morgan Chase)

SHAREHOLDER MEMO: Exempt Solicitation – Goldman Sachs; Exempt Solicitation – JP Morgan

Action Item: Proposals at Goldman Sachs and JP Morgan Chase ask the companies to review and report on their proxy voting record and policies related to diversity and climate change. The supporting statements suggest the reviews disclose incidents of misalignment between the companies’ policies and voting records compared to the goals of the Paris Agreement or other initiatives in which the banks take part, compare the companies’ track records with those of other major investment firms and funds, and identify recommendations to strengthen voting guidelines related to climate change and diversity.

Impact on Diversified Shareholders: The proposals highlight what the proponents view as a discrepancy between the asset managers’ voting records on climate- and diversity-related shareholder proposals and their public stances on the materiality of climate and diversity issues. The proponents point to concerns about the asset managers’ focus on “near-term risk for a specific company” rather than “risk to the whole portfolio” which the proponent describes as shortsighted. As examples of these misalignments, the proposals point to discrepancies such as JP Morgan’s membership in the Principles for Responsible Investment, which urges investors to vote by prioritizing “addressing systemic sustainability issues,” compared to the company’s voting record in 2023 of only supporting 15 climate resolutions out of 65.   

Bottom Line: Shareholders who feel that alignment between the asset managers’ public stances and proxy voting behavior would benefit diversified portfolios should consider voting FOR these proposals.

CORPORATE GOVERNANCE

GOOD CORPORATE GOVERNANCE AFFECTS COMPANIES’ PRIORITIZATION OF WIDE-RANGING ISSUES THAT IMPACT DIVERSIFIED INVESTORS

Corporate governance ensures transparency, accountability, and company responsiveness to shareholder interests. Governance structures should provide shareholders the means to elect directors and otherwise engage as owners of the company. Shareholder votes to enhance corporate governance can ensure that companies are attuned to the interests of diversified shareholders.

SHAREHOLDER CAMPAIGNS:

Fair Treatment of Shareholder Nominees. COMPANIES: Amazon, Inc. (AMZN), Cognizant Technologies (CTSH), Impinj (PI)

LEAD FILER: Jim McRitchie

SHAREHOLDER MEMO (if applicable):

Action Item: These proposals ask each company to adopt and disclose a policy related to the treatment of shareholder nominees for board membership. The proposals encourage a policy that treats shareholder nominees and Board nominees equitably and without unnecessary administrative or evidentiary requirements.

Impact on Diversified Shareholders: Recent regulatory developments have reduced barriers to “proxy access,” providing a greater opportunity for shareholder nominees for directors to appear on companies’ proxy cards. These shareholder proposals seek policies to ensure that company management does not place unfair hurdles in the way of shareholders seeking such access. This issue has particular resonance for diversified shareholders because their interests may diverge from those of corporate management with respect to corporate practices that externalize significant costs that threaten diversified portfolio returns. As the supporting statement explains:

Company interference in [the proxy access] process is especially dangerous because financial theory recommends that most shareholders diversify their portfolios.

Such diversified investors have an interest in ensuring our Company does not profit from practices that threaten social and environmental systems upon which diversified portfolios depend. Company directors influenced by executives, in contrast, may prioritize Company profitability over systems that are of critical importance to shareholders. 

Bottom Line: The proponent argues that corporate governance structures that allow shareholders to effectively use the proxy access provision will likely benefit diversified shareholder portfolios by reducing entrenchment of boards that prioritize company profits over sustainability issues that are financially significant to diversified portfolio returns. Diversified investors who believe they would benefit from better access to the corporate proxy card can vote FOR these proposals.

Lobbying Disclosure / Political Contributions Congruency. COMPANIES: Comcast (CMCSA), Eli Lilly (LLY), Wells Fargo (WFC)

ACTION SUPPORTER: Majority Action

SUPPORTIVE INFORMATION: Proxy Voting for Racial Equity

EXEMPT SOLICITATION: Wells Fargo

Action Item: Majority Action has issued a proxy voting guide on racial equity that recommends shareholders vote FOR the lobbying disclosure proposal at Eli Lilly filed by Service Employees International Union (SEIU) and at Wells Fargo filed by John Chevedden and Reynders, McVeigh Capital Management. Additionally, Majority Action recommends voting FOR the political congruency proposal at Comcast filed by Arjuna Capital.

Impact on Diversified Shareholders: Majority Action’s guide states that:

Corporations’ political and policy agendas often exacerbate racial disparities and undermine the public-facing statements they make on racial justice. In addition to entrenching racial inequities and undermining democracy, unbridled corporate political influence poses risks to the long-term portfolios of diversified investors. While political rent-seeking in the form of election spending or lobbying may help one company, it can cause externalities for other companies, taxpayers, consumers, and workers – which ultimately hampers economic value creation and portfolio growth upon which long-term diversified investors depend.

Bottom Line: In the 2022 federal elections cycle, businesses spent US$3.5 billion on political contributions and over US$4 billion on lobbying their interests to U.S. political candidates. Diversified investors concerned about how misaligned corporate political contributions and lobbying may affect their investments can consider voting FOR these proposals.

Vote Against Directors Who Bypass the SEC No-Action Process and Sue Shareholders. COMPANY: ExxonMobil (XOM)

LEAD FILER: No Proponent – Refer to Individual Memos/Links

SUPPORTIVE MATERIAL: As You Vote Proxy Voting Guidelines and Exempt Solicitation (Wespath and Mercy Investments); Exempt Solicitation (Majority Action); Exempt Solicitation (Illinois Treasurer Michael Frerichs)

Action Item: Earlier this year, ExxonMobil (XOM) sued two shareholders that had filed a climate-related proposal for the 2024 annual shareholder’s meeting, bypassing the straightforward SEC process that companies typically take when they seek to omit a proposal from the proxy. Instead, Exxon initiated litigation that would likely be prohibitively expensive for the shareholders. Unlike Exxon, they do not have a vast corporate treasury to fund the litigation. Unsurprisingly, the shareholders withdrew the proposal.

Nevertheless, Exxon has pressed forward with the case, incurring legal fees itself and imposing them on the two proponents. In response, there is a growing recognition that Exxon has gone too far, leading some to call for investors to vote against some or all board members of Exxon:

  • Marcie Frost, the CEO of CalPERS, a pension fund that manages more than $463 billion, decried the lawsuit to the CalPERS board, stating “[t]he long-term repercussions of silencing shareholders should concern everyone. So let me be clear, CalPERS will not be silenced. We will not be silenced when doing what is right to provide long-term investment returns for our members and we will not be silenced in our call for more information and more ways to assess the risks of climate change.”
  • Wespath Benefits and Investments and Mercy Investments filed an exempt solicitation urging shareholders to vote against Executive Chair & CEO Darren W. Woods and Lead Director & Nominating and Governance Chair Joseph L. Hooley “due to the company’s hostile treatment of its shareholders, including recent legal action taken by the company intended to silence constructive discussion of its strategy.”
  • As You Vote, a proxy voting service that uses an ESG lens, has released its Guidelines for the 2024 season. The guidelines contain a new recommendation to vote against all company directors where “[t]he company bypasses the SEC No-Action process and instead litigates against the proponent(s), representative(s), and/or resolutions.” [emphasis added].  This recommendation appears to be a direct response to Exxon’s lawsuit.
  • Majority Action Executive Director Eli Kasargod-Staub stated that “ExxonMobil’s board of directors is responsible for these egregious attacks on shareholder democracy and risk management … Together, shareholders can hold the board accountable for this irresponsible behavior by voting against Joseph L. Hooley, Executive Chairman Darren Woods, and other ExxonMobil directors between now and the company’s shareholder meeting on May 29.”

Additionally, the Interfaith Center for Corporate Responsibility (ICCR), an investor network with more than $4 trillion in assets under management, released an exempt solicitation recently that refers to the lawsuit as an “aggressive action” that is “nothing less than a ‘SLAPP suit’ intended to intimidate perceived opponents and silence dissenting points of view.” Further, ICCR states that the lawsuit “appears to be part of a broader attempt by Exxon Mobil to insulate the board and management from accountability.”

While Exxon has tried to argue that shareholder resolutions “hijack” shareholder meetings, they have recently enabled Exxon shareholders to show majority support for changes in company actions:

  • BNP Paribas’ 2021 proposal on climate lobbying received a 64% vote,
  • United Steelworkers’ 2021 proposal on lobbying received a 55% vote, and
  • CBIS’ 2022 resolution seeking an audited climate transition plan received a 50%+ vote.

Impact on Diversified Shareholders: This litigation tactic is a grave concern for all diversified shareholders. It creates a threat that merely exercising one’s governance rights as a shareholder can be prohibitively expensive. Silencing shareholder voices will threaten the performance of diversified portfolios because, as we explain in the Background section of POTB, shareholders are uniquely positioned to understand the importance of a company’s impact on the economy and diversified shareholders, a perspective corporate management does not share. 

Bottom Line: Shareholders who believe in respecting the right of investors to express their voice regarding the impact of companies on diversified portfolios can consider voting AGAINST ALL directors at Exxon, as recommended in the As You Vote guidelines or AGAINST Mr. Hooley and Mr. Woods, as suggested by Westpath and Mercy Investments as well as Majority Action.

HUMAN RIGHTS

RESPECTING HUMAN RIGHTS CAN POSITIVELY AFFECT ECONOMIC STABILITY AND GROWTH

Research has shown that improvements in respect for human rights and civil liberties “boost economic growth rate,” while the International Labour Organization estimates that 4% of global GDP is lost due to work-related conditions. Failure to prevent exposure to human rights abuses in the supply chain can lead to supply chain snarls that ripple throughout the entire economy.

SHAREHOLDER CAMPAIGNS:

Human Rights Impact Assessment of AI Driven Advertising Practices. COMPANIES: Meta Platforms (META), Alphabet (GOOG, GOOGL)

FILERS: Mercy Investment Services (Meta); Shareholder Association for Research and Education (SHARE) Canada (Alphabet)

SHAREHOLDER MEMO: Exempt Solicitation (Meta); Exempt Solicitation (Alphabet)

Action Item: These proposals seek an independent third-party human rights impact assessment (HRIA) examining the actual or potential human rights impacts of each company’s use of artificial intelligence in targeted advertising.

Impact on Diversified Shareholders: As the proposals describe, the companies rely heavily on the revenue garnered through advertising on their platforms, and those ads target specific users or user groups based on “algorithm decision-making systems.” The proposals further point to “[c]oncerns around fairness, accountability, non-discrimination and transparency [that] have prompted regulators globally to develop regulations aiming at regulating the use and development of responsible AI while promoting transparency and effective human rights due diligence.” Human rights violations resulting from the incorporation of AI into the algorithms these companies use could adversely affect the economy by eroding social cohesion, diminishing trust in democracy, and increasing economic inequality through skills gap amplification, job displacement, and wealth concentration, ultimately impeding innovation and economic growth, threatening the long-term performance of diversified portfolios.

While the proposals do not reference effects on diversified shareholders, we understand the shareholder proponents intend to file exempt solicitations in support of these proposals that will address impacts on diversified portfolios.

Bottom Line: The potential human rights risks of AI may match its potential for innovation and improvement. Diversified investors who believe they would benefit from better transparency around how companies address human rights violations in targeted advertising can vote FOR these proposals.

Human Rights Impact Assessment. COMPANY: Walmart (WMT)

LEAD FILER: Oxfam America

CO-FILERS: Sisters of Charity of Saint Elizabeth; Dominican Sisters of Sinisawa, School Sisters of Notre Dame, Mercy Investment Services, Congregation of Saint Joseph, Intercommunity Peace & Justice Center; Congregation of the Benedictine Sisters, Boerne, Texas; Missionary Oblates of Mary Immaculate-US Province

SHAREHOLDER MEMO: Exempt Solicitation

Action Item: This proposal asks the company to publish a HRIA relating to one or more “high-risk commodity[ies]” in the company’s supply chain or facility in its operations.

Impact on Diversified Shareholders: The proposal describes news reporting during the COVID-19 pandemic featuring concerning working conditions for Walmart frontline workers, including punishment for using sick time, as well as a recent study indicating “at least half of Walmart’s hourly workers earn under US$29,000 annually – below a living wage.” The proposal also points to publicly reported issues such as Walmart suppliers illegally using child migrant labor and forced labor in Cambodia. Human rights violations such as these, both in and outside the United States, can dampen economic growth as they perpetuate wealth inequality.

While the proposal does not reference effects on diversified shareholders, we understand the shareholder proponents intend to file an exempt solicitation in support of this proposal that will address impacts on diversified portfolios.

Bottom Line: Shareholders who feel Walmart’s assessment of its human rights impacts in its facilities and through supplier relationships would benefit their diversified portfolios should consider voting FOR this proposal.

PUBLIC HEALTH

A HEALTHY POPULATION IS VITAL FOR ECONOMIC RESILIENCE AND GROWTH

Effective and equitable public health measures are essential for maintaining a strong economy. Widely accessible and affordable public health interventions mitigate the economic burden of healthcare expenditures, freeing up resources for other critical sectors. Moreover, a healthier population creates a more productive workforce, which in turn fosters consumer confidence and spending, driving economic growth and stability in the long term.

SHAREHOLDER CAMPAIGNS:

Comply with Expert Guidelines on Antimicrobial Use. COMPANIES: McDonald’s Corporation (MCD), Restaurant Brands International (QSR), Yum! Brands (YUM)

FILERS: Benedictine Sisters of Boerne, Texas (McDonald’s); Amundi Asset Management and HESTA (Yum!); Trinity College, Cambridge (Restaurant Brands Int’l)

SHAREHOLDER MEMO: Exempt Solicitation (Yum!); Exempt Solicitation (Restaurant Brands)

Action Item: These proposals ask the companies to institute a policy requiring compliance with World Health Organization (WHO) Guidelines on Use of Medically Important Antimicrobials in Food-Producing Animals throughout their supply chains.

The proposals at Yum! Brands and Restaurant Brands International are part of the Antimicrobial Resistance (AMR) Guardrail effort supported by TSC.

Impact on Diversified Shareholders: As described by the proposals, “[a]ntibiotics overuse is known to exacerbate antimicrobial resistance (“AMR”), which the WHO describes as ‘one of the top 10 global public health threats facing humanity’… By 2050, AMR could cause $100 trillion in lost global production, thus lowering the economy’s intrinsic value and devastating portfolio returns for institutional investors.” The proposals further contends that company’s decision not to “prioritize broad AMR risks [do] not account for [their] diversified owners’ interests in optimizing public health, the economy, and their long-term portfolio returns.”

Bottom Line: The proposals state that “[b]y changing [company] policies and adhering to the WHO Guidelines, [the company] could save lives, contribute to a more resilient economy, and protect [their] diversified investors’ portfolios.” Shareholders should vote FOR these resolutions.

Patents and Access. COMPANIES: AbbVie (ABV); Johnson & Johnson (JNJ)

LEAD FILER: Mercy Investment Services (Johnson & Johnson); Friends Fiduciary (AbbVie)

SHAREHOLDER MEMO (if applicable): Exempt Solicitation (AbbVie)

Action Item: These proposals seek the establishment of a process or policy, as well as subsequent reporting, from each company regarding possible impacts of their patent-seeking practices beyond the primary patent.

Impact on Diversified Shareholders: Healthy populations are a main driver of a productive workforce. As a result, when people are unable to access medical supplies, or medications, or vaccinations, economic growth may suffer alongside population health. The proposals describe the complex web of patents that drug companies often pursue in an effort to maintain intellectual property protections on branded drugs, which, the proposals assert, “play[s] an important role in maintaining high prices and impeding access.” The proposals further emphasize the cost to consumers: “U.S. prices for branded drugs were nearly 3.5 times higher than prices in 32 OECD member countries.”

While the proposals do not reference effects on diversified shareholders, we understand that the shareholder proponents intend to file exempt solicitations in support of these proposals that will address impacts on diversified portfolios.

Bottom Line: Access to medicine is critical for a healthy population. Shareholders who are concerned about the negative repercussions of high drug prices on their portfolios should consider voting FOR these resolutions.

Third-Party Assessment on Non-Sugar Sweetener Risks. COMPANY: PepsiCo (PEP)

FILERS: Sisters of the Sorrowful Mother International Finance, Inc., Sisters of Charity of the Blessed Virgin Mary, School Sisters of Notre Dame Central Pacific Province, Northwest Women Religious Trust (Sisters of Saint Joseph of Peace), Congregation of the Sisters of the Holy Names of Jesus and Mary, Common Spirit Health, and Trinity Health

SHAREHOLDER MEMO: Exempt Solicitation

Action Item: A proposal at PepsiCo asks the board to issue a third-party assessment of the harms associated with non-sugar sweeteners.

Impact on Diversified Shareholders: The proposal addresses both the uncertainty around the safety of non-sugar sweeteners (typically chemical compounds like Aspartame) and the inappropriate influence on researchers and regulators that are supposed to maintain neutrality when determining the safety of such additives. The exempt solicitation filed by Seventh Generation Interfaith identifies the potential long-term health costs of noncommunicable disease that may be related to non-sugar sweeteners as a risk for diversified shareholders. The solicitation explains:

The industry’s influence over regulatory bodies, which allows PepsiCo to pursue profits even though the risks of NSSs have not been methodically confirmed, ultimately threatens to pass the additional social costs, including the burden of managing chronic disease, to PepsiCo’s consumers, taxpayers, and other economic participants. These costs are ultimately borne by the systems that support the economy, and thus the diversified investors who rely upon a healthy economy for long term returns … Furthermore, the ever-increasing risk of diet related chronic diseases and the growing social burden of managing these diseases, represents an overarching risk to shareholders with diversified portfolios. [emphasis added]

Bottom Line: Big Food (the industry of major food and beverage companies) has been compared to Big Tobacco in terms of techniques used to influence consumer actions and downplay science. While science on non-sugar sweeteners is still emerging, the proponent argues that the potential for externalized costs due to health risks from those products may be detrimental to diversified shareholders. Investors who believe that these substances may hurt their long-term portfolio growth (especially if researchers and regulators are subject to undue industry influence) may want to vote FOR this resolution.

Racial and Ethnic Disparities in Public Health Outcomes. COMPANY: United Health Group, Inc. (UNH)

LEAD FILER: Mercy Investment Services

SHAREHOLDER MEMO (if applicable):

Action Item: This proposal asks the board to oversee a third-party audit analyzing the racial and ethnic disparities in the company’s business.

Impact on Diversified Shareholders: The proposal notes that CDC data demonstrate higher rates of illness and death experienced by racial and ethnic minority groups and that the impact of racial inequities “costs $320B annually in health care spending.” As noted for other healthcare proposals in this publication, a healthy population leads to more productive workers in the economy. More than 40 percent of U.S. residents identify as a member of a racial or ethnic minority category, according to the U.S. Census, representing a large proportion of the U.S. population that may be affected by the concerns addressed in this proposal.

While the proposal does not reference effects on diversified shareholders, we understand the shareholder proponents intend to file an exempt solicitation in support of this proposal that will address impacts on diversified portfolios.

Bottom Line: Healthcare outcome disparities by race and ethnicity may undermine workforce productivity, increase healthcare costs, and perpetuate socioeconomic inequalities, ultimately hindering economic growth and stability. Shareholders who are concerned about the potential impact of healthcare disparities on the economy and their portfolios should consider voting FOR these resolutions.

Articles of Association – Healthier Products. COMPANY: Nestle (NSRGY)

LEAD FILER: ShareAction

SHAREHOLDER MEMO: Investor Briefing: Why Nestlé’s shareholders should support the 2024 health resolution

Action Item: The resolution asks for an amendment to the company’s Articles of Association to require an annual report on various social issues including KPIs on food and beverage healthfulness and asks for a company-set time-bound target on increasing the proportion of sales derived from healthier products.

Impact on Diversified Shareholders: According to the investor briefing memo filed by the proponent, more than half (51%) of the global population will be overweight or live with obesity by 2035 unless prevention, treatment and support improve. The economic impact of overweight and obesity on the world is set to reach $4.32tn — around 4% of current global GDP — annually by 2035. While the resolution does not expressly speak to diversified investor risk, the proponent’s briefing memo clearly identifies the threat of diet-related ill health worldwide hurts economies and therefore portfolios of diversified long-term investors:

For diversified investors, a healthy economy is a far more important driver of overall portfolio returns than the performance of a single company. While selling products that are less healthy may generate short-term financial returns for Nestlé, the externalities this creates negatively affect its shareholders who don’t just own Nestlé, but rely on a growing economy to support their entire portfolios. Indeed, a number of studies have shown that broader economic factors explain 75-94% of average portfolio return.

Bottom Line: Proponents makes the case that the Nestle product mix threatens public health and therefore economic growth. Shareholders who believe that improving public health will protect their diversified investments can consider voting FOR this proposal.

Disclaimer

The purpose of Portfolio on the Ballot 2024 (“POTB”) is to highlight arguments based on a systems-first, diversified portfolio value proposition rather than to provide specific voting advice. The Shareholder Commons (TSC) does not provide and POTB does not constitute investment, financial planning, legal, accounting or tax advice. We are neither licensed nor qualified to provide any such advice.  POTB does not generally make voting recommendations (although POTB does recommend votes in support of certain specific shareholder initiatives supported by TSC). We do not necessarily endorse or validate the information provided by third parties and contained in POTB. TSC does not seek directly or indirectly, either on their own or another’s behalf, the power to act as proxy for a security holder and does not furnish or otherwise request or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization.

The aggregated information comprising POTB represents a snapshot in time of publicly available information regarding shareholder matters that may be voted on at annual shareholder meetings of public companies in 2024.

The information provided in POTB is provided “AS IS” without warranty of any kind. The Shareholder Commons makes no representations and provides no warranties regarding any information or opinions provided herein. Neither The Shareholder Commons nor any of its employees, officers, directors, or agents, shall be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with use of or reliance on any information contained herein, including, but not limited to, lost profits or punitive or consequential damages. The content of our programming, publications and presentations is provided for informational and educational purposes only and should not be considered as information sufficient upon which to base any decisions on investing, purchases, sales, trades, or any other investment transactions. We do not express an opinion on the future or expected value of any security or other interest and do not explicitly or implicitly recommend or suggest an investment strategy of any kind.

Our events, websites, and promotional materials may contain external links to other resources and may contain comments or statements by individuals who do not represent The Shareholder Commons. The Shareholder Commons has no control over, and assumes no responsibility for, the content, privacy policies, or practices of any third-party websites or services that you may access as a result of our programming. The Shareholder Commons shall not be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with use of or reliance on any such content, goods or services available on or through any such websites or services.

Together, we're embarking on a fundamental transformation of our financial system...