4 minute read 2 Feb 2021
Seedlings of coniferous trees

What investors expect from the 2021 proxy season

By Jamie Smith

EY Americas Center for Board Matters Investor Outreach and Corporate Governance Specialist

Trusted resource on corporate governance and institutional investor trends. Researcher and analyst. Lifelong learner. Mother and nature enthusiast.

Contributors
4 minute read 2 Feb 2021

Investors want companies to adapt their strategies to prioritize stakeholders and consider environmental and social impacts.

In brief:

  • For the past 10 years, we’ve engaged with investors to gain insight into their priorities for the proxy season. A lot has changed.
  • Investors are holding boards accountable for how companies create long-term-value and act as responsible stewards of natural and human capital.
  • Investors view diversity as critical to driving innovation and performance. 

As we mark a decade of engaging with investors with this year’s proxy season preview, much has changed in the investor landscape, particularly over the past year of the pandemic. Investors want boards to help companies adapt their strategies for a future in which prioritizing stakeholders and considering environmental and social impacts will be critical to building resilience and creating long‑term value.

Investors view workforce diversity as a key component in driving innovation and performance. This is of particular importance in a dynamic environment marked by ongoing business model disruption, changing stakeholder demands and accelerating sustainability risks. These are some of the key themes of our conversations with governance specialists from more than 60 institutional investors representing over US$38 trillion in assets under management, including asset managers (62% of all participants), public funds (20%), labor funds (13%) and faith-based investors (2%), as well as investor consultants and associations (3%).

Learn more:

 

Shifts in the investor landscape over EY’s decade of investor dialogue

The investor landscape has undergone major changes in recent years, spurred by crises as well as opportunities. Some of the most dramatic shifts we have observed in 10 years of ongoing conversations with investors include the rise in company‑shareholder engagement, which was emerging in response to mandatory say‑on‑pay proposals as we began our investor outreach in 2011 and has since become a defining governance trend of the past decade.

ETF and index fund managers who used to be labeled "passive" have become much more vocal, becoming active stewardship leaders and driving engagement campaigns that help define the board agenda. Along with these developments, investors have been steadily increasing transparency around their stewardship priorities and proxy voting, which is expanding opportunities for companies to educate themselves on individual investors’ perspectives.

And most recently, ESG has gone mainstream. While a decade ago investors raising environmental and social topics with us were predominantly socially responsible investors (SRIs), ESG is now fundamentally reshaping investment and stewardship, dominating our conversations across all investor types and revealing SRIs as harbingers of current investment trends.

Heading into 2021 and beyond we are attuned to new shifts underway that could continue to alter the investor landscape, including how stakeholder capitalism is implemented and governed, potential growth in investors using proxy votes to communicate their views and drive change, and the potential impacts of consolidation in the asset management industry on investor stewardship and ESG trends.

Looking ahead

The past year has stress tested the social contract and expanded opportunities for companies to lead on global challenges. In response, board members will need to take on more of a leadership role in focusing their companies on long-term-value creation, and from what we’ re hearing, investors expect them to do so. Heading into proxy season 2021, investors seek to hold boards accountable for how companies are charting a course through recovery and continued disruption to long-term-value creation and acting as responsible stewards of natural and human capital. Investors are also communicating an increased willingness to vote against board members, and in favor of shareholder proposals, to express their views on environmental and social topics —   and are doing so as sustainable investment trends continue to accelerate and the political context and regulatory framework around ESG continue to evolve.

 

Questions for the board to consider  

  • How is the company’ s strategy evolving to deliver value to multiple stakeholders as trends around technology and sustainability accelerate, and as attention to companies’ environmental and social impacts grow? How are related goals and performance incentivized and communicated?
  • Does the company have the right leadership, culture and values — both in the C-Suite and the boardroom — to help the company innovate, lead and thrive in today’s business environment?
  • How is the company using workforce data to demonstrate to the market its progress on, and integrity around, diversity commitments and goals and the company’ s investments in its people?
  • Do the company’ s disclosures clearly communicate how key environmental and social topics are overseen at the board level and any actions the board is taking to deepen its expertise and inform an independent perspective on those topics?
  • Does the company approach ESG as a strategic differentiator or a compliance exercise?
  • Does the company’s ESG reporting provide the comparable, high-quality ESG data investors seek? And is the company's ESG data getting picked up by leading third-party data and ratings providers?
  • Does the board have the diverse skills, expertise and perspectives it needs to guide strategy over the next five or more years? f not what is the board doing to recruit new directors and expand its search to include more diverse nominees?
  • How does the board stay informed about the views and priorities of the company’s major investors and other key stakeholders? To what extent are board leaders involved in investor engagement?

Summary

Investors say boards need to help their companies address all stakeholder needs. In 2021, they are focused on how companies are addressing climate risk and strategic workforce issues including diversity.

About this article

By Jamie Smith

EY Americas Center for Board Matters Investor Outreach and Corporate Governance Specialist

Trusted resource on corporate governance and institutional investor trends. Researcher and analyst. Lifelong learner. Mother and nature enthusiast.

Contributors