Bank of America, Goldman Sachs Urged to Disclose Clean Energy Financing in Proxy Voting

We’re in the thick of proxy-voting season, and corporate America is facing shareholder demands on climate reporting, reproductive rights, and workers’ rights, among other issues, on proxy-voting ballots. We examine them with the help of Morningstar Sustainalytics, a division that provides sustainability research.

Pushing on Bank of America, Goldman Sachs

Is the transition to clean energy going too slowly? That’s the premise of proposals at Bank of America BAC and Goldman Sachs GS at their April 24 annual meetings.

Investors are looking for better details around bank exposure to the climate transition. Thus, the New York City Employees’ Retirement System asks Bank of America to disclose a metric it calls the Clean Energy Supply Financing Ratio. The ratio looks at the bank’s clean energy financing as a proportion of its fossil fuel financing. (That includes equity and debt underwriting and project finance.) It should also define what the bank considers low carbon and fossil fuel. You can read the proposals, as well the banks’ recommendations, in the B of A proxy here and in the Goldman Sachs proxy here.

Already, JPMorgan Chase JPM, Citigroup C, and Royal Bank of Canada RY have agreed to the same asks from New York City.

New York City Comptroller Brad Lander has said that the transition from financing fossil fuels to low-carbon energy is going “far too slowly” and that this new metric is the solution. It “integrates both halves of the equation to combat the climate crisis: phasing out fossil fuels and accelerating investments in climate solutions.” (For a primer on net zero, the importance of the 1.5-degree cap, and other global warming concepts, read this.)

Jekaterina Spiridonova, analyst at Morningstar Sustainalytics, writes: “The requested ratio can help shareholders better understand the bank’s progress in achieving its net zero goals by highlighting the proportion of the bank’s financing that is still being directed to fossil fuel energy supply vs clean energy. The ratio will also offer a more standardized metric for comparing progress between banks.”

Abortion Rights on the Ballot

Reproductive rights may feature in the November state elections, but it’s also popping up on proxy ballots, ever since the US Supreme Court overturned Roe v. Wade in June 2022. On April 25, shareholders of HCA Healthcare HCA will vote on a proposal for HCA to report on “any known and potential risks to the company posed by state laws severely restricting abortion rights in the case of medical emergencies” beyond litigation, and to detail how the company plans to minimize those risks. You can read the proposal and HCA’s response here.

The proposal was filed by United Church Foundation, investment manager for United Church of Christ churches and ministries. HCA is one of America’s largest healthcare service providers, and facilities in Florida and Texas, which severely restrict access to abortion rights, represent 50% of the company’s hospitals. Shareholders are concerned “about whether its hospitals are providing sufficient guidance to doctors on when they can legally provide emergency abortions,” according to Rhia Ventures, which filed the proposal on behalf of United Church. It’s particularly fraught when miscarriage is inevitable, or the health or life of the woman is in danger. In states with severe abortion-rights restrictions, hospitals may run afoul of federal law when they deny a patient abortion care, according to Rhia.

That has repercussions not just for patients, but for the hospital and its employees. “This uncertainty is not only dangerous for patients, but also puts physicians and the hospital at legal risk,” says Andrew Spurr, analyst at Morningstar Sustainalytics. “Furthermore, employee dissatisfaction could result from allegations of health care refusal. These are some of the ways abortion bans are creating physician recruitment and retention issues.”

Workers’ Rights a ‘Hot Topic’ This Proxy-Voting Season

One of the longest strikes in Alabama history took place at Warrior Met Coal HCC, ending in 2023 when the United Mine Workers told its members to return to work. The union and the company are still negotiating a new contract, but last year a National Labor Relations Board Administrative Law Judge found that Warrior engaged in unfair labor practices in negotiations leading up to the strike.

Now the AFL-CIO, the largest federation of unions in the US and an affiliate of the Mine Workers, proposes that Warrior’s board commission a third-party assessment of its policies and practices regarding its workers’ right to freedom of association and collective bargaining. Roughly 21% of Warrior’s work force is unionized through the Mine Workers.

The AFL-CIO claims Warrior lost $1.3 billion in potential revenue between 2021 and 2023 due to the strike. Its shareholder activism around Warrior’s labor relations has yielded some results. In February, Warrior’s board adopted new limits on its executive severance benefits after the UMWA and the AFL-CIO said it planned to introduce a proposal on golden parachutes.

Expect more unionization proposals at other companies. The AFL-CIO has filed similar proposals at Wells Fargo WFC and International Flavors & Fragrances IFF. Wells’ annual meeting is on April 30, and IFF’s is on May 1.

Says Ignacio Garcia Giner, analyst at Morningstar Sustainalytics: “Workers’ rights are a hot topic” this proxy voting season. In 2023, such proposals to respect the rights of freedom of association and collective bargaining received an average 42% support from independent shareholders.

“We’re seeing these proposals again across a number of industries, from manufacturers to banks, airlines and of course, a big vote at Amazon” AMZN, at which a shareholder is requesting a third-party assessment about Amazon’s policies regarding freedom of association, says Giner. (For details, read Amazon’s proxy here). Proposals for workers’ rights are often framed by recognized international conventions on human and labor rights, such as those promoted by the International Labor Organization and the United Nations.

20% of Adobe Shareholders Vote That Board Must Accept Resignations of Unpopular Directors

The stereotype of company directors is that they’re a cozy group that look out for each other to the detriment of shareholders. That was the premise behind a recent proposal at Adobe ADBE, where board directors can keep serving even if they lose elections that nobody contests.

While companies often have policies that state that directors who fail to receive majority votes must resign, boards don’t have to accept this resignation. That means a director who fails to obtain a majority vote could, say, chair a key Adobe board committee, says shareholder advocate John Chevedden, a Redondo Beach, California, investor who proposed that the company be forced to accept the resignation. (You can read Chevedden’s proposal here and more about him here). Adobe opposed Chevedden’s proposal. In the end, one fifth of Adobe shareholders voted in favor of it.

“A number of proposals have been tabled at companies this year whereby shareholders are placing a higher expectation on the board in situations where a director has failed to receive majority support,” says Spurr of Sustainalytics.

“Shareholders appoint the board to protect their interests through the oversight of management. When a board member does not receive majority support from voting shareholders, we believe this sends a clear message to the board that shareholders have lost confidence in the director in question, and desire change.”

True. But the proposal only received support from 20% of shareholders. Counters Spurr: “That indicates a reasonable level of support for this request to more stringently apply the company’s resignation policy. We expect other similar proposals this proxy season to achieve strong support.”

34% of Sonoco Shareholders Push Company to Detail Political Spending

In an election year, expect more scrutiny of corporate political spending, too. For example, Chevedden’s resolution at Sonoco Products SON won 34% of the vote. Chevedden asked the packaging company to provide transparency on all of its political spending, including indirect spending going to trade associations or super PACs. Sonoco had opposed Chevedden’s proposal. You can read the proposal and Sonoco’s response here.

Writes Jackie Cook, who oversees the stewardship program at Morningstar Sustainalytics: “These indirect forms of political influence are particularly relevant as they may connect a company to issues and campaigns potentially contradictory to the company’s public positions, such as on climate or workers’ rights. Corporate campaign giving came under the spotlight after the violent storming of the U.S. Capitol and subsequent scrutiny of which politicians voted to overturn the 2020 presidential election.”

Stay tuned.

Source: morningstar.com