Sustainability remained a top shareholder engagement priority in 2024

With summer in the rearview mirror, we are gearing up again for shareholder engagement season. Fiduciary Trust International (FTI) maintains a focus on resolutions that address company decarbonization and climate targets. We also intend to file proposals on behalf of our clients relating to artificial intelligence (AI) risks, human rights in the supply chain, and the distribution of technology for use in Russian weapons systems. These themes are financially material to several of our largest equity holdings and have garnered significant investor interest in recent years.

A year in the life of shareholder engagement

Sustainability-related shareholder advocacy remained resilient in 2024 despite well-funded campaigns seeking to undermine the implementation of environmental and social initiatives. Investors continued to assess material environmental, social and governance (ESG) factors as part of fundamental business practices and to fulfill their fiduciary duties.

998 resolutions were filed in total through May 2024, representing a new high-water mark.¹

• Recurrent themes included climate change, corporate political influence and human rights.
• Governance and compensation proposals regained focus from investors, signaling a shift from recent years.
• While interest in environmental and social issues declined slightly from 2023, they still represented the overwhelming majority of resolutions.
• Unsurprisingly, there was a surge in proposals related to AI and transparency regarding its use. We expect this trend to continue in the coming years given equity market concentration in AI beneficiaries.

Based on shareholder proposals voted for the constituent companies of the Russell 3000 Index from January 1, 2024 to May 31, 2024. Source: Institutional Shareholder Services

ESG materiality and the value of shareholder engagement

FTI’s approach to sustainable investing is driven by the belief that integrating financially material ESG factors into fundamental analysis has the potential to deliver long-term value for clients. These factors provide a critical lens through which we can analyze the financial materiality of a company’s exposure, for example, to deforestation risk or hurdles to ethical AI usage. We aim to generate attractive risk-adjusted returns by focusing on these factors and by actively engaging with companies.

Shareholder resolutions are a key method to engage with companies. These proposals are initiated by a group of investors and subject to a vote of the corporation’s shareholders. They serve as an important engagement tool for investors interested in raising issues that are important to them. Clients can directly engage with companies by signing letters of support or serving as a lead filer on a resolution.

Shareholder resolutions are generally nonbinding, meaning the board is not required to act. However, investors expect companies to respond if a proposal attracts at least 25% of votes. Thus, shareholder resolutions often lead to constructive discussions with corporate management to reach a consensus on their shared goal: improving the long-term financial performance of the company. These gains may be attributable in part by ESG’s focus on operational efficiency across the enterprise as well as the tendency to reorient management’s focus from short-term profits to long-term sustainable growth.

FTI has offered engagement opportunities for several years. We support clients throughout the entire shareholder engagement process to ensure the burden is as low as possible. We handle the documentation required to satisfy regulatory requirements and partner with a third-party consultant to represent clients interested in acting as lead filers or co-filers. While clients are welcome to be as actively involved as they would like, even those that participate as lead filers can defer to FTI to handle most tasks, including discussions with company management.

Our sustainable investing team proactively identifies engagement opportunities throughout the year based upon their financial materiality. The shareholder resolution process is seasonal, with most filings occurring between October and December. We monitor engagement opportunities to ensure all resolutions are filed on time.

Exhibit 2: FTI shareholder engagement schedule³

*Please contact your portfolio manager if you are interested in participating in FTI’s shareholder engagement offering in 2025.

Key engagements in 2024

In 2024, FTI clients chose to participate in five distinct shareholder engagement opportunities. They focused on decarbonization, executive compensation and human rights. These case studies highlight positive outcomes that can result from an active shareholder engagement approach.

Climate change and decarbonization

FTI Letter of Support (LOS) to Chevron Corporation: Transferred Assets

Chevron is the second-largest integrated energy company in the United States and has 11.1 billion barrels of oil-equivalent reserves as of December 2023. The firm operates in both upstream and downstream markets, with the latter accounting for approximately 77% of revenues.

In recent years, oil and gas production assets have changed hands from operators with stronger climate commitments to those with weaker targets. Transferring emissions from one company to another may reduce balance sheet emissions, but it does not mitigate stakeholder exposure to climate risk. Between 2016 and 2022, Chevron reported a 5.2% reduction in its portfolio carbon intensity.⁴ At the same time, the firm sold more assets than any other U.S.-based energy company.⁵ In its annual report, Chevron provided no further information regarding its divested assets, including whether the purchasing entity had climate standards or emissions disclosures. This reporting gap left investors with an insufficient understanding of Chevron’s actions to mitigate its contribution to climate change.

The LOS requested that Chevron follow best practices for divestitures, including conducting climate-related due diligence on acquirers, such as emissions reporting practices and emission reduction targets. This assessment would enable Chevron to exclude acquirers that would increase the likelihood that transferred assets lead to higher global emissions. In October 2023, FTI and Franklin Templeton’s Investment Sustainability Solutions Team (ISST) met with members of Chevron’s board to discuss the firm’s sustainability commitment.

Results

• The shareholder resolution, which was filed by As You Sow, was omitted by the Securities and Exchange Commission (SEC). This means that the proposal was excluded from Chevron’s proxy statement at its annual general meeting (AGM). If a target company believes that a proposal does not meet SEC Rule 14a-8, which sets the standards for admissibility, it informs the agency of its intention to omit the proposal. Staff attorneys then review the company’s argument to determine if an omission is appropriate. In this particular instance, the SEC ruled for the resolution to be omitted given it “seeks to micromanage the company.”

FTI Letter of Support (LOS) to NextEra Energy: Board Matrix

NextEra is the largest utility in the United States and the premier developer of renewable power capacity. The firm’s NextEra Energy Resources (NEER) subsidiary—the world’s largest generator of renewable energy—is building out its battery storage capabilities. NextEra’s Florida Power & Light (FPL) subsidiary operates as an electric utility and relies mostly on natural gas for electricity generation.

We believe that a diverse board—in terms of relevant skills, gender and race/ethnicity—is an indicator of a well-functioning company. In our view, diverse perspectives can drive better decision making and help avoid groupthink. Despite shareholder proposals in recent years, NextEra continues to hamper investors in determining the comparative strengths of individual directors and their self-identified race/ethnicity.

The LOS asked NextEra to create a Board Matrix that would provide investors with consistent, comparable and accurate data on the firm’s directors. Such information would enable shareholders to assess whether board members are well-positioned to lead the firm, especially regarding its role in the transition to a low carbon economy.

Results

• 40.6% of shareholders voted in favor of the proposal

Executive Compensation

FTI Letter of Support (LOS) to Amazon.com: Executive Compensation

Amazon.com is a technology company engaged in e-commerce, cloud computing, online advertising and digital streaming. Franklin Templeton, the parent company of FTI, has routinely engaged with the company’s board on its remuneration practices in recent years. Amazon presented willingness to hear investor views on executive compensation and potential changes to its approach.

Given our collaboration with Franklin Templeton’s ISST, FTI was offered the opportunity to co-sign a LOS sent to Amazon. The document requested that the firm consider linking long-term targets, including its climate commitments, to the vesting conditions of restricted stock units (RSU) in management’s incentive plans. Holding executives accountable to targets through this compensation mechanism would strengthen the credibility of the targets. Additionally, the LOS asked for further guidance on the intervals at which RSUs are issued to address “black box” concerns.

Results

• This engagement is ongoing and part of Franklin Templeton’s broader dialogue with Amazon. We will continue to monitor progress regarding the firm’s executive compensation.

Human Rights

FTI Resolution to Meta Platforms: Child Safety Impacts

Meta Platforms, formerly known as Facebook, is a multinational technology conglomerate that develops social media applications. The firm has long been criticized for its role in propagating explicit material and its inadequate response to child safety.

The resolution requested that Meta’s board adopt targets and annually publish a report that includes quantitative metrics appropriate to assessing whether the firm has improved its performance globally regarding child safety impacts and actual harm reduction to children on its platforms.

Results

• The resolution received 18.5% of the total vote in 2024. This equates to nearly 60% of the non-management vote, given the dual-class share voting structure at Meta. Mark Zuckerberg, the firm’s CEO, currently controls the majority of voting power. FTI’s filing received significant press following Meta’s AGM and represented one of several resolutions targeting transparency on social media platforms.

FTI Letter of Support (LOS) to Apple Inc.: Report on the Online Sexual Exploitation of Children

Apple is a multinational technology company that designs and manufactures smartphones, personal computers, tablets and accessories. As of 8/30/24, it was the world’s most valuable company and has more than 2.2 billion devices in active use around the globe.⁶

As a member of the Board of the Tech Coalition, Apple has agreed to increase transparency and accountability on how policies related to child sex abuse material (CSAM) are operationalized and to disclose data illustrating the impact of those practices. Despite Apple’s commitments, the firm’s annual reporting has given shareholders minimal insight into progress in these areas. This is particularly notable given industry competitors including Meta, Amazon and AT&T have reported detailed results from child rights impact assessments.

FTI’s LOS requested that Apple publish a report by March 2025 to assess the prevalence of CSAM on its platform and the effectiveness of its current communication safety tools.

Results

• Along with a small group of co-filers, FTI met several times with Apple’s leadership team to discuss critical topics in child safety and privacy. These conversations resulted in a negotiated action plan with Apple and a withdrawal of the resolution. Apple agreed to several key requests of shareholders on data and transparency. The shareholders will continue to meet with management regularly. In many cases, withdrawals represent an impactful way to influence companies. Target firms typically prefer this negotiated approach given it does not result in a public vote.