A Successful Season for SASB-Based Shareholder Resolutions
Timed to the 2020 Annual General Meeting (AGM) season, shareholder advocacy non-profit As You Sow filed seven shareholder resolutions, on behalf of individual proponents, that specifically requested material disclosure compliant with environmental and social corporate reporting standards published by the Sustainability Accounting Standards Board (SASB). SASB standards are explicitly designed to reflect financially material aspects of corporate behavior as it pertains to sustainability topics. Large investment advisors have committed to SASB, even to the extent that BlackRock and State Street Global Advisors, the world’s largest and third-largest asset managers, announced in January that they would use SASB disclosure to frame their proxy voting policies. Resolutions calling for SASB disclosure should be expected to enjoy widespread support from both investors and corporate managements. Indeed, the results produced by these resolutions have suggested that this is the case.
The seven resolutions addressed climate-related water usage risks in the semiconductor and food processing industries, and human capital risks such as diversity and fair labor practices in the specialty retailers and distributors industry. One was withdrawn on a technicality. Of the other six, two received commitments to implement and were withdrawn, one was fully implemented after a shareholder vote of 11%, and the remaining three earned overwhelming shareholder support, of 61%, 66%, and 79% approval. This post comprises an analysis of these resolutions and speculates on the general potential for SASB-based resolutions to act as game-changers for corporate accountability.
The first set of resolutions comprise two that were withdrawn after commitments to implement. The withdrawal letters, documenting the commitments, can be found on the As You Sow resolution tracker. Both resolutions requested SASB diversity and inclusion (D&I) metrics in the form of EEO-1 statistics, and SASB labor practice metrics such as percentage of workforce earning minimum wage or below, as well as voluntary and involuntary turnover. These resolutions are of interest on a number of points. First, D&I and turnover metrics were among those requested by the Human Capital Management Coalition’s 2017 petition to the SEC, echoed by the 2019 recommendation of the SEC Investor Advisory Committee on Human Capital Management Disclosure. Both of these contributions were cited in the SEC’s own 2019 Proposed Rule on the Modernization of Regulation S-K, indicating the interest of regulators in these sustainability topics. Second, resolutions regarding wage rates are rarely put forward by proponents, partly because they have been difficult to prevail in the SEC no-action process. However, the attention that the topic has lately garnered, including in Congress, makes wage rates much more salient as a significant policy issue.
The resolutions were filed with Ulta Beauty, Inc. and Advance Auto Parts, Inc. After negotiation with the proponent’s representative, Ulta promised to disclose median hourly wage, turnover metrics, and EEO-1 diversity statistics. The Advance resolution followed a 2019 AGM season proposal requesting a SASB-compliant sustainability report, which the company successfully omitted from the proxy by claiming substantial implementation. Nevertheless, this season proponents were greeted with a response from the company that it would be joining the SASB Alliance, and would base its 2021 Sustainability Report on SASB metrics, including, at a minimum, employee turnover metrics.
Not all companies are willing to provide financially material sustainability metrics voluntarily, however. Four companies opposed the proposals all the way to the vote. One proposal requested SASB-compliant water risk disclosure from the poultry processor Sanderson Farms. This was the first SASB resolution to come up for a vote after BlackRock’s 2020 letter to CEO’s stressing SASB compliance. The Sanderson proxy opposition statement stressed that “there is no single reporting framework that has become predominantly accepted in the United States and reporting under multiple frameworks would be burdensome.” The proposal earned 11% support. Nevertheless, later that day Sanderson issued a press release announcing that it would implement not just the proponent’s request, but produce an entire SASB-compliant set of metrics. BlackRock, the company’s largest shareholder, later issued a Voting Bulletin explaining that it voted against the proposal “due to our engagements with the company and their willingness to produce SASB-aligned sustainability reporting.”
The next resolution to be considered was a resubmission to Fastenal Company regarding EEO-1 diversity disclosure as specified in its SASB standard. A nearly identical resolution filed for the 2019 season earned 41% support, but the company would not implement the requested reporting. In 2020, the proposal earned 61% support.
The third resolution, filed with Genuine Parts Company, was identical to those filed with Advance Auto Parts and Ulta Beauty. The resolution earned an astonishing 79% support. Finally, the same resolution again was voted upon at O’Reilly Automotive. O’Reilly tried to exclude the resolution from the proxy on the grounds of substantial implementation, however the SEC sided with the proponent’s defense brief. This time, the proposal was supported by 66% of voting shares.
While we will not know how various investment advisors voted until later this summer, BlackRock, which was either the largest or second-largest shareholder in each case, has given obvious signals in addition to the CEO letter and the Sanderson Farms Voting Bulletin, in Voting Bulletins for other AGMs. For example, it explained why it did not support a J.B. Hunt climate resolution by saying, “[t]he Company has markedly improved its disclosures and has committed to publishing a SASB-aligned report by year-end.” BlackRock’s rationale for voting against a director at National Fuel Gas was that “[t]he company maintains very limited disclosure of climate risk and does not produce SASB or TCFD [Task Force on Climate-related Financial Disclosures] aligned reporting.…” Despite supporting a Chevron lobbying resolution, BlackRock noted that “we recognize and applaud Chevron’s current TCFD and SASB-aligned reporting.…” In an earlier post it was predicted that BlackRock and State Street, joined by other members of SASB’s Investor Advisory Group such as Vanguard and Fidelity, would drive the success of SASB resolutions. It appears that this prediction was accurate.
SASB standards represent a minimum for corporate sustainability reporting, and should be augmented by broad stakeholder-focused standards such as those published by the Global Reporting Initiative. It is gratifying for socially responsible investors to note that as of this writing, 215 companies have adopted SASB-compliant reporting, despite the standards having existed in their final form for only eighteen months. This number is growing rapidly. We recommend that investors interested in sustainability disclosure demand that all public companies meet at least this baseline for the topics that concern them. Submission of future SASB-based resolutions will ensure that these investors achieve a high level of success.
This article was originally published on Harvard Law School Forum on Corporate Governance.
Photo by Rostyslav Savchyn on Unsplash