ANALYSIS: Financials Lead ESG Shareholder Engagement, Debt Deals

It’s been a busy spring for the sustainable debt and shareholder ESG proxy efforts. The recent heightened activity in both of these areas made me wonder: Are shareholders launching ESG efforts against companies involved in ESG debt issuance? And do these efforts vary based on sector?

To answer this question, I analyzed shareholder ESG activity as well as ESG debt at the sector level, and discovered that only the industrials and financials sectors are particularly involved in both of these areas.

Shareholder Activity in 2022

In 2022, shareholders were the most active in four sectors: consumer discretionary, financials, communications, and consumer staples.

Consumer discretionary sector companies saw the most shareholder and investor activity, with 45 social and 13 environmental shareholder proposals, and one social objective.

The runner-up sector was financials, which had 29 environmental and 26 social shareholder proposals, and one social objective. Shareholder efforts in the communications sector included 45 social and seven environmental shareholder proposals.

Coming in fourth place was the consumer staples sector—and with the rise in greenwashing claims, it’s not surprising that both consumer-centric sectors would appear in the top four for 2022.

Companies Involved in 2022 ESG Debt Issuance

The sectors with the most investor activity on ESG issues, however, didn’t necessarily correspond with the sectors involved in the most ESG debt issuance—signaling that some shareholders may be launching ESG efforts against companies involved in ESG debt transactions, while other shareholders are not.

ESG debt includes bonds and loans tied to environmental, social, and governance objectives.

The financials sector led in ESG debt issuance in 2022 (sector breakdown includes issuers and debtors), and was the number two sector for shareholder ESG engagement in 2022.

The industrials sector also had a strong showing on both fronts in 2022, coming in third for ESG debt issuance and fifth for environmental and shareholder efforts.

This isn’t the case for all sectors, however. Although the utilities sector comes in second for ESG debt issuance, the sector saw limited environmental and social shareholder activity.

Shareholder Activity YTD

Four industries are taking the lead in terms of shareholder and investor activity so far this year: financials, consumer discretionary, consumer staples, and energy.

To date, most of the financials sector shareholder activity has focused on environmental shareholder proposals, such as the environmental impacts of financial policies. Thirty-seven environmental and 33 social shareholder proposals have been included in the definitive proxy statements of financials sector companies so far this year.

As in 2022, the top four sectors for shareholder activity year-to-date include consumer-centric industries. In addition to the greenwashing concerns that also likely impacted 2022 data, the rumblings around the FTC’s revisions to its Green Guides and the SEC’s proposed climate disclosure rule have influenced shareholder efforts against the consumer-centric companies this year.

The energy sector was in the bottom half of 2022’s list for shareholder activity, but it’s one of the busiest in 2023 YTD. The increase in shareholder efforts appears to be linked to the growing concern around greenhouse gases emissions and climate change, evidenced by the uptick in environmental shareholder proposals.

Sectors Involved in ESG Debt Issuance YTD

The same four sectors that led ESG debt issuances last year—financials, utilities, industrials, and consumer discretionary—are leading ESG debt issuances so far this year.

And what’s most interesting of all is that the same two sectors—financials and industrials—are early leaders in environmental and social shareholder activity as well as ESG debt issuance.

The utilities sector is again the runner-up in ESG debt issuance—but has seen very little environmental and social shareholder activity so far this year. The lower shareholder interest in utilities—both this year and last year—may signal that while shareholder ESG efforts aren’t as prevalent in this sector, utilities companies have the potential to be held accountable for the ESG goals tied to debt instruments issued to them.

In light of all this information, are shareholders launching ESG efforts against companies that are also taking on debt tied to ESG goals?

The data suggests that this is somewhat sector-specific. And while every sector has both shareholder ESG activity and involvement in the issuance of ESG debt, the extent to which the sectors engage in both of these elements varies. But for now, the industrials and financials sectors appear to be leading the charge on both fronts.

Bloomberg Law subscribers can find related content on our ESG Practice page, Practical Guidance: Shareholders page, as well as our Practical Guidance: Sustainable Finance page.

Data on ESG debt accessible on the Bloomberg Terminal at BI ESG <GO>. Data on shareholder activity accessible on the Bloomberg Terminal at BI PROXY <GO> and BI ACT <GO>.

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