Beyond profit, today’s shareholders expect corporations to meet standards of social and environmental performance, suggests a recent report by Ernst & Young on a growing trend toward shareholder resolutions focused on these issues. “In 2010, resolutions focusing on social and environmental issues made up the largest portion of all shareholder proposals,” states the report, Shareholders Press Boards on Social, Environmental Risks. What’s more, the percentage of social and environmental shareholder resolutions that garnered at least 30 percent shareholder support, a critical threshold for many corporate board members, rose from just 3 percent in 2005 to 26.8 percent in 2010.
In response to the report findings, Ernst & Young urges CEOs and their boards to be prepared to do the following:
- Enhance dialogue with shareholders and improve disclosure in key areas related to social and environmental issues. Robust sustainability reporting can help with this.
- Ensure that directors’ skills are relevant to the chief areas of stakeholder concern, including risk management tied to social and environmental matters. Then provide shareholders with a better understanding of how directors’ backgrounds and skills contribute to corporate strategy.
- Consider whether using non-traditional performance metrics—including those related to environmental/ sustainability issues—could help align compensation with risk.