Based on their potential financial implications (positive or negative) and heterogeneity, Norges Bank Investment Management's "Shareholder Proposals on Sustainability" proposes a framework for asset managers to guide their decision-making on E&S proposals. The framework relies on the guiding principles of materiality (which NBIM notes may vary by investor based on their different mandates and investment horizons) ) and limited prescriptiveness (based on the agency model of governance and disparate shareholder interests, capabilities, and investment horizons) in the context of company-specific circumstances, as shown here:
While the publication acknowledges that research and associated insights on the implications of E&S proposals are still in a relatively nascent stage, NBIM observes:
Most practitioners highlight that the valuation effects of shareholder proposals are likely to vary according to the topic and the identity of the filer. Emerging research suggests that proposal filings addressing financially material sustainability issues correlate with subsequent increases in company value, while resolutions that address irrelevant or immaterial issues are associated with valuation declines. Many view this diversity as inevitable given the low cost of filing a shareholder proposal in some markets, which enables a wide variety of sponsors to engage with companies through this mechanism. Often, these sponsors may have tangential motives for filing or lack the organisational capabilities to analyse companies’ individual situations, resulting in proposals whose associated costs outweigh any benefits of implementation.
The US reportedly has the highest volume of E&S proposals, with proponents most often representing public pension funds and faith-based investors.
Access additional information & resources on our Institutional Investors page. This post first appeared in the weekly Society Alert!