The number of shareholder proposals is reaching new heights this year as a result of a backlash against companies engaging in various issues such as climate change and abortion rights.

Advocacy groups are increasingly utilizing these resolutions to exert influence on corporate agendas, challenging companies’ adoption of policies seen as overly political. For instance, one group submitted a resolution demanding that Eli Lilly disclose the risks associated with supporting abortion. Last year, the pharmaceutical company expressed its opposition to Indiana’s near-comprehensive abortion ban.

The surge in proposals scrutinizing companies’ positions on social and environmental issues is evident, with the number rising to 74 for annual meetings held prior to May 31, compared to 43 the previous year, according to data from ISS Corporate Solutions. This trend reflects the spillover of intense political divisions into the capital markets.

Companies are now facing proposals from both ends of the political spectrum, entangling them in contentious debates concerning environmental, social, and governance matters. ISS Corporate Solutions reports that a total of 682 shareholder proposals were filed for annual meetings scheduled through May 31.

“This is becoming a focal point of our society as a whole,” remarked Jun Frank, a managing director at ISS Corporate Solutions and lead author of an upcoming paper on the subject.

Conservative-leaning shareholders, mirroring the resistance from Republican politicians like Florida Gov. Ron DeSantis, are putting forth proposals that question the prudence of corporate diversity policies and the feasibility of decarbonization. Their argument centers on the belief that companies should prioritize their bottom line.

Scott Shepard, a fellow at the National Center for Public Policy Research, a conservative think tank in Washington, emphasized, “Companies are abandoning their fiduciary duties to shareholders to adopt the hard left position. We’re just trying to get them back to sanity and neutrality.”

On the other side, liberal advocates represented by organizations like As You Sow aim to promote environmental and social corporate responsibility through shareholder advocacy. Their proposals seek to compel companies to evaluate their carbon emissions, conduct workforce diversity audits, and address other related matters.

The growth in shareholder proposals has been facilitated by a 2021 policy change by the Securities and Exchange Commission (SEC), making it more difficult for companies to limit these resolutions.

Proxy season, which offers shareholders an opportunity to shape corporate agendas, typically takes place in the spring during annual meetings. While shareholder resolutions are generally nonbinding and most do not pass, proponents consider even a 30% vote in favor of an issue as a strong message that the company must seriously consider it.

During this season, American Express opposed an abortion-related proposal that requested the company to report on the risks of cooperating with law enforcement in states where abortion is illegal. Amex’s board stated that the company is obligated to comply with law enforcement requests, and shareholders agreed by voting down the proposal.

Alphabet, the parent company of Google, recommended that shareholders reject a similar abortion-related proposal, citing the company’s routine pushback against “overbroad” demands. Shareholders are scheduled to vote on it in June.

Many boards attempt to avoid alienating customers and shareholders, leading them to advise voting down every proposal. In some cases, they negotiate with shareholders to withdraw proposals before they reach a vote. However, analyzing these proposals consumes board time and exposes companies to potentially unwelcome media attention.

Mastercard is currently facing shareholder pressure regarding the potential tracking of gun-related transactions. The credit card company stated that while it is committed to addressing gun violence, it paused its efforts to implement a separate merchant category code for gun stores due to legislative developments in several states. The proposal targeting Mastercard will be voted on in June.

Michael Littenberg, a partner at the law firm Ropes & Gray, which advises companies on ESG issues, stated, “They’re in the business of doing business. Most companies would probably rather stay out of the political discourse. There’s an increasing amount of proposal fatigue. The more proposals that companies get, the more proposals they have to spend time thinking about at the board level.”

Maria Ghazal, counsel at Business Roundtable, expressed that the SEC policy change has “lowered the bar,” resulting in a “broken system” that forces companies to divert resources and attention to address an influx of proposals that are often unrelated to their governance and long-term success.

While many proposals fail to resonate with the majority of shareholders, with only around 12% of ESG-related proposals aimed at S&P 1500 companies receiving majority support in the last proxy season, the Sierra Club noted that a message was sent in April when 28% of Bank of America shareholders voted in favor of a proposal requesting details on how the bank plans to achieve its 2030 climate transition target. The bank’s board advised shareholders to vote against it, highlighting the bank’s disclosure of 2030 targets related to manufacturing, energy, and power generation, with plans for further disclosures next year.

Nathan Fabian, chief responsible investment officer at Principles for Responsible Investment, an advocacy organization affiliated with the United Nations and counting BlackRock and Vanguard Group among its signatories, remarked, “Any material vote from the more substantial, longer-term investors in companies will usually trigger some kind of reaction from the board.”

Given the current political climate, companies should anticipate a continued influx of proposals in the coming years.

“These proposals are not going away,” stated Michael Littenberg from Ropes & Gray. “I can guarantee you that next year we will have another record number.”