Dear Colleagues –

I am happy to forward below this week’s Portfolios on the Ballot (POTB) digest update with a highlight on proposals on fighting poverty wages (including TSC’s own guardrail proposals on paying a living wage) as well as a proposal at Shell sponsored by a 27-investor coalition. As a reminder, POTB features shareholder actions that include arguments that go beyond protecting enterprise value to support the economic structures upon which all diversified portfolios depend.

We hope you find this week’s update valuable.

Best,

Mari

_______________________________

Mari Schwartzer

Consultant

The Shareholder Commons

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***Protect Portfolio Value During the 2024 Proxy Season***

The Shareholder Commons' Portfolios on the Ballot 2024 flags proxy votes that are designed to protect the systems upon which all investments depend. For diversified investors, protection of these systems is the single most important factor in determining long-term returns. Read the report and subscribe to our weekly digest to stay informed about upcoming proxy actions that include a systemic lens. If you have a shareholder proposal or other initiative that you believe should be flagged, please contact us.

From: Rick Alexander <Rick@theshareholdercommons.com>
Date: Wednesday, May 8, 2024 at 1:59 AM
To: Mari Schwartzer <Mari@theshareholdercommons.com>
Subject: Shareholders turn attention to poverty wages and Paris-aligned GHG goals

POTB Week 7

POTB 2024 Proxy Season Digest

Week 7

Welcome to our seventh weekly update, which includes systems-first initiatives that will be presented at shareholder meetings taking place between May 8th and June 14th.

Today we highlight how poverty wages and income inequality threaten the value of diversified portfolios and why investors should vote FOR TSC’s living wage proposals during upcoming meetings at Walmart, Target, and Kroger. We also discuss how a coalition of 27 shareholders is asking Shell to revise its GHG reduction targets in accordance with the Paris-aligned goals in order to protect portfolio value. Read the full report on the POTB webpage and use the accompanying table to sort meetings by date, company, or subject matter.

In Focus: Fighting poverty wages

and climate change

I. The Economy-wide Argument Against Paying Poverty Wages: The Shareholder Commons is supporting investors in running a guardrail on poverty wages and income inequality. We currently have three shareholder proposals pending that ask Walmart, Target, and Kroger to pay a living wage. All three companies’ starting wages are insufficient to meet the subsistence needs of a single adult with no children, even in areas with the lowest cost of living.

Current levels of poverty wages and income inequality threaten the global economy with losses that will burden investment portfolios over the next 30 years and beyond. Closing the living wage gap worldwide could generate as much as an additional $4.56 trillion every year through increased productivity and spending, which equates to a more than 4 percent increase in annual GDP. Conversely, higher wages lead to increased productivity and consumption in a virtuous macroeconomic cycle that benefits investment portfolios.

Living wages protect investment portfolios from the economic damage wrought by impoverished workers and excessive income inequality. Yet many companies underpay workers to boost margins. Simply put, an individual company’s interest in maximizing its own long-term enterprise value will often diverge from its diversified owners’ interest in ensuring the security, stability, and health of the labor force, which can maximize the long-term returns of their portfolios by increasing the value of the economy overall.

In our recent case study, we describe the research establishing the relationship between poverty wages and income inequality on the one hand and long-term returns of diversified portfolios on the other and show why shareholders can and must steward companies away from pay practices that threaten the economy. We also show why, in many cases, investors must prioritize systemic concerns over individual company enterprise value.

These three proposals allow pension funds, foundations, endowments, and other institutions working on behalf of beneficiaries with diversified portfolios—as well as the professionals who serve them—to move beyond the false promise of enterprise value as the sole measure of financial success to which shareholders should attend. They provide a significant opportunity for investors to lift their gaze and push back against corporate behavior that threatens the economy upon which their portfolios depend.

II. An International Coalition of Investors Takes on Shell: On May 21, shareholders of Shell PLC will decide whether to recommend that Shell accelerate its GHG reduction strategy. The shareholder resolution, sponsored by a coalition of 27 shareholders with approximately €4 trillion in assets under management and led by Follow This, asks Shell to revise its medium-term GHG reduction targets in accordance with Paris-aligned goals to “protect the value of their entire investment portfolios.”

The failure to address the climate crisis presents a dire threat to long-term, diversified investors. While individual companies may be able to improve profits by emitting carbon well beyond the limits of the Paris Accords, a failed transition would mean that the average portfolio could suffer a 30% reduction in returns over the next 40 years compared to a Paris-compliant scenario. Shell, a major global oil producer with a significant carbon footprint, recently weakened its 2030 carbon reduction target and eliminated its 2035 objective entirely – a decision that has potentially dramatic ramifications on the portfolios of diversified investors.

TSC’s case study on climate change found that companies have economic incentives to reduce emissions only to the extent that doing so increases enterprise value, but that addressing climate change and the risks it poses to diversified investors requires additional reductions. Investors with diversified portfolios should push portfolio companies to reduce emissions to the extent that doing so protects overall market returns by preserving the climate system and the economy, even when such reductions reduce enterprise value at some portfolio companies.

The investor coalition pushing Shell to do better includes the UK’s largest pension plan (National Employment Savings Trust), as well as other major asset managers and owners including Amundi Asset Management and Rathbones Group – investors representing around 5% of Shell’s outstanding shares who recognize the need to “protect the value of their entire investment portfolios… [understanding] this to be a part of their fiduciary duty.” In their May 2 investor briefing, the co-filers emphasized the economy-wide nature of this issue. The statement on Follow This’ website describes that:

As co-filing investors, we underline that this climate resolution will protect the long-term value of [the] entire portfolios of all asset managers, and that achieving the goals of Paris is essential to preserve the health of the global economy.

III. Continued Shareholder Response to Exxon: As we detailed previously, shareholders are reacting forcefully to ExxonMobil’s decision to sue shareholders. In addition to calls by shareholders to vote against some or all Exxon board members, one set of shareholder advocates – Wespath Benefits & Investments and Mercy Investment Services – is hosting a virtual investor briefing tomorrow, May 9th at 12pm ET. This effort to silence shareholders addressing climate issues continues to be a major source of concern for diversified investors and worthy of their sustained attention.

Upcoming Meetings

May 9

WEC Energy Group (WEC)

DIRECTOR VOTE: AGAINST Gale E. Klappa, Non-Executive Chairman (Item 1.07), Thomas K. Lane, Lead Independent Director, (Item 1.08) and AGAINST Danny L. Cunningham, Chair of the Audit and Oversight Committee (Item 1.03)