September 2022 / INVESTMENT INSIGHTS
2022 Aggregate Proxy Voting Summary
A closer look at key trends in T. Rowe Price’s proxy voting activity over the past year
Executive summary
In this report, we summarize our proxy voting record for the 12-month reporting period ended June 30, 2022. Our goal is to highlight some of the critical issues in corporate governance during the period and offer insights into how we approach voting decisions in these important areas. This report is not an all-inclusive list of each proxy voted during the year but, instead, a summary of the year’s most important themes.
Thoughtful Decisions Leading to Value Creation
At T. Rowe Price, proxy voting is an integral part of our investment process and a critical component of the stewardship activities we carry out on behalf of our clients. When considering our votes, we support actions we believe will enhance the value of the companies in which we invest, and we oppose actions or policies that we see as contrary to shareholders’ interests.
We analyze proxy voting issues using a company‑specific approach based on our investment process. Therefore, we do not shift responsibility for our voting decisions to outside parties, and our voting guidelines allow ample flexibility to account for regional differences in practice and company‑specific circumstances. Ultimately, the portfolio managers are responsible for voting the proxy proposals of companies in their portfolios.
The following table is a broad summary of some of our proxy voting patterns and results for the reporting period covering July 1, 2021, through June 30, 2022, across our global equity-focused portfolios.
Themes From Vote Results
The categories above represent a subset of our total voting activity during the reporting period, but these are the most prevalent and significant voting issues. In the section below, we discuss some of these categories in detail.
In this voting period, we have identified two distinct but related trends that stand out. The first is a decline in our overall support levels for shareholder proposals of an environmental or social nature. The second is a decline in our support levels for directors. The reason that these two trends are connected relates to our perspective that accountability for managing the environmental, social, and governance (ESG) issues facing a company resides at the board level. While shareholder resolutions can be an effective means of instigating change under certain circumstances, in most cases, the election of directors is a more targeted way for investors to express reservations over a board’s oversight of strategic, financial, human capital, environmental, or other issues related to the company’s performance.
Social, Environmental, and Political Proposals
The year 2021 was described as a “breakout” year for resolutions addressing environmental, social, and political issues, particularly in the U.S. Issues such as racial justice, income inequality, worker safety, and climate change had been on prominent display within the corporate sector due to a confluence of events, including the coronavirus pandemic. By extension, shareholder resolutions addressing such issues received greater average support from investors and higher visibility in 2021 when compared with previous years.
However, in this most recent proxy voting season, those trends stalled. There are multiple reasons for this outcome. It began when the U.S. Securities and Exchange Commission (SEC) adapted its interpretation of what types of resolutions were eligible to be added to a company’s proxy and voted on by the shareholder base. The SEC allowed more proposals across a wider range of environmental and social topics to move forward. The number of environmental and social resolutions voted on at companies within the S&P 1500 Index rose almost 70%, from 147 in the 2021 season to 249 this year. The traction that so many of these resolutions gained in 2021 seemed to not only attract a new set of proponents this year but also inspired experienced proponents to expand their topics of interest.
Our observation is that the increase in the volume of proposals resulted in a decrease in their overall quality. We observed more inaccuracies in proposals this year, more poorly targeted resolutions, and more proposals addressing non‑core issues. In addition, we observed a marked increase in the level of prescriptive requests. Proponents have moved swiftly from disclosure‑based requests (seeking additional reporting on ESG matters) to action‑based requests (seeking specific commitments, capital investments, or structural changes from the targeted companies). At the same time, proponents exhibited a lower propensity to negotiate settlements with issuers before taking a proposal to a vote.
Outside the U.S., another significant development is affecting voting patterns, particularly in EMEA and Australia. In these markets, there is a growing embrace of voluntary, management‑sponsored climate resolutions, or so‑called “say on climate” votes. The purpose of these votes is for the company to present the details of its medium‑ and long‑term climate strategy and reporting to investors for their endorsement. In markets where the “say on pay” voting concept has not gained traction—notably Japan—the spotlight remains on a small number of high‑profile environmental resolutions brought by shareholders. In markets where the “say on climate” concept is more prevalent, we observe a more nuanced dynamic where the management‑supported resolution may compete with a proponent’s request for additional disclosure. In this reporting period, there were 46 “say on climate” votes across all T. Rowe Price portfolios. As the table shows, we supported 97% of them.
T. Rowe Price has consistently maintained a selective, case‑by‑case approach to the support of shareholder resolutions. We do not take a standing position on proposals of an environmental, political, or social nature. Instead, we examine each one individually, taking into account the company’s degree of exposure to the ESG issue being raised, the materiality of the issue to the business, and the company’s current level of disclosure or programs addressing the issue.
The results are reported in the table above. Our support for shareholder resolutions in the environmental category dropped from 28% in the 2021 reporting period to 16% this year. Our support for social resolutions fell from 19% to 13%. However, our support for resolutions addressing corporate lobbying and political spending rose from 22% to 30%.
These figures do not include two unique subcategories of shareholder resolutions, which we have identified as separate line items in the table. Interestingly, one category grew significantly this year: anti‑ESG proposals. The small set of proponents who request that companies unwind their commitments to various ESG initiatives ramped up its activities markedly in 2022, sponsoring 45 resolutions at companies in T. Rowe Price portfolios so far this year. In past years, such resolutions have totaled fewer than 10. The second category is resolutions aimed at persuading Japanese electric utility companies to discontinue the use of nuclear power—a small but persistent movement that began with the Fukushima nuclear disaster in 2011. In our analysis, we separate these two categories because they represent the appropriation of the shareholder resolution process to address a narrow and noneconomically based agenda.
T. Rowe Price publishes a detailed analysis of our votes on environmental and social shareholder proposals in the first quarter of each year. This paper, “For or Against: The Year in Shareholder Resolutions,” can be found on our website.
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
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September 2022 / INVESTMENT INSIGHTS
Donna Anderson is the global head of Corporate Governance. Donna leads the firm’s proxy voting and engagement efforts and serves as a specialist for incorporating governance considerations into the firm’s investment research process.
Jocelyn Brown is the head of Governance, EMEA and APAC, for T. Rowe Price International Ltd. She is a member of the ESG Committee. Jocelyn is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.
