Prior to the onset of COVID-19, both companies and investors expected ESG policies to be a major theme of the 2020 proxy season. As the pandemic hit, some believed that ESG would take a back seat to dealing with the crisis. It now appears that the truth is somewhere in the middle. Certainly, COVID-19 has impacted ESG, enhancing certain considerations and perhaps diminishing others. It has likely accelerated the expectation that corporate leaders incorporate ESG into overall corporate governance.
Proxy advisory firms have recently increased the profile of their ESG businesses and policies, and Glass Lewis has published a guide to its views on ESG post-pandemic including the following highlights:
- Shareholders will look for proactive risk management and oversight, improved diversity efforts, succession planning and board renewal, and adapting shareholder engagement to the crisis.
- Salary cuts represented positive moves but do not reflect long-term compensation policy. Glass Lewis warns against rushing changes prior to setting corporate recovery strategy, and notes increased risks from high executive compensation and windfalls tied to stock option grants during the crisis.
- Be clear with shareholders when seeking flexibility in terms of dividends, buybacks, and capital raising. Highlight the consideration of long-term health over short-term impacts.
- The crisis may pause campaigns in the very near term but will likely leave more companies exposed to campaigns or take-overs in the latter half of 2020 or early 2021.
- Shareholders' timelines and priorities may have shifted in the wake of the crisis, accelerating or slowing specific concerns. Human capital concerns will likely be a focal point going forward. Overall, expect the number of proposals to increase.
- The global nature of the pandemic has exposed multiple vulnerabilities, and climate change poses greater risks to those same vulnerabilities. Expect shareholders to highlight preparing for climate change risks as a cornerstone of business resiliency.