The Annual General Meeting (AGM) season is a useful indicator of the state of play between corporates and investors. 2025 will mark the shift from post-covid sustainability-related grand statements closer to rationality.
The changing role of AGM
In 2024, an AGM resolution was filed asking a consumer goods retailer to report on the potential risks and costs related to abortion-access restrictions in the US. For many investors this presented a challenge. Is it something to support in the name of ‘ESG’ or not?
This is just one example of how, in recent years, the role of the AGM broadened from a traditional corporate governance ‘health check’ to a forum where boards can be held accountable on broad, sometimes indirect, sustainability issues. This evolution reflected the enthusiasm from both corporates and investors on the integration of sustainability and stakeholder considerations heightened during the Covid period.
‘Say on climate’ resolutions, the introduction of ESG metrics in executive pay packages and Diversity, Equity & Inclusion targets became common place. And investors – with different interpretations of ESG and various agendas - also exerted pressure, influencing the behaviour of corporates. The result was an unprecedented, and sometimes unreasonable, number of shareholder-led resolutions filed in the US, with some tentative filings in Europe and Asia.
Now, a shift is occurring. The number of mentions of sustainability in Q1 S&P500 earnings transcripts is telling. And we expect the 2025 AGM season to confirm that the time of grand statements regarding sustainability considerations is behind us.
But does this mean the ESG-era is over? Far from it. This is actually an opportunity to refocus corporates’ and investors’ approach to sustainability and governance considerations.
Altering attitudes
The general change of tone that will characterise the 2025 AGM season reflects the current evolution of European and US government policy and regulation regarding sustainability. In Europe, the Draghi report served as a wake-up call concerning competitiveness. While the EU maintains its ambitious objectives on decarbonisation, medium-term targets have already been flexed with strict reporting somewhat relaxed.
In the US, the politicisation of ESG and its simplistic association with ‘wokeism’, including at AGMs, is leading to a rejection of anything deemed to fall under this umbrella. This extreme stance was unfortunately reflected in the Securities and Exchange Commission’s decision to introduce limitations on shareholder resolution filing at AGMs. While we had grown increasingly concerned about the misuse of shareholder resolutions by some investors, this change has a direct impact on shareholders’ ability to hold boards to account.
Although the new SEC rules have made headlines, the reality is that European companies have essentially been shielded from such filings for many years because of share ownership rules or the discretion allowed to boards in some countries to decide on the inclusion of these resolutions at the AGM. This has not prevented investors from holding companies to account in different ways, with engagement being very prominent on this side of the Atlantic.
A new AGM era
With sustainability and social topics likely to be more muted this AGM season and investors focused on volatile markets and tariff wars, we expect investors and companies to adopt a more rational approach, centred on risk management and financial materiality.
This shift is also an opportunity to bring back some well-deserved attention to corporate governance. However, as with the other ESG ‘areas’, investors ought to take a considered approach. We caution against the blanket application of grand governance principles. The specific circumstances of each company and broader economic considerations need to be taken into account. This is especially important given current tensions surrounding competitiveness, including regarding issuers’ appetite for public listing versus private markets, changing listing venues, or the relaxation of the one-share one-vote principle.
The integration of ESG metrics in executive pay is a good illustration of a governance theme where a much-needed dose of rationality needs to come into play. We find that the hasty integration of ESG into pay too often results in meaningless metrics, or worse, guaranteed pay. Does this actually serve shareholder or stakeholder interests? A relevant example is that of Credit Suisse whose executive board achieved a 84% payout on the non-financial metrics of risk and control, values and culture and sustainability in 2022. We all know what happened next…
As investors, we ought to say louder that corporates cannot reasonably be asked to have an answer to every single societal issue. The evolution of the policy landscape as well as the decisions of some corporates to soften their sustainability targets serve as a reminder that showing ambition cannot be the end goal. But it does not mean it no longer matters. Shareholder meetings, alongside ongoing engagement, remain important tools in holding companies to account, but considering the underlying economics, including competitive advantage considerations, are fundamental in supporting a solid sustainability strategy. This in turn requires a solid governance and a more rational approach from investors.
Related articles
Taking another look at ESG integration in sovereign investments
2024: Our active stewardship illustrated
Our 2024 retrospective: The main market events and their ESG implications
This is a marketing communication. This document is intended for professional clients.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. The information contained in this material may be partial information and may be modified without prior notice. The information is expressed as of the date of writing and is derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, is not necessarily all-inclusive and are not guaranteed as to accuracy. Reference to certain securities, financial instruments, sector is for illustrative purposes and is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.
CARMIGNAC GESTION - 24, place Vendôme - F-75001 Paris - Tél : (+33) 01 42 86 53 35. Investment management company approved by the AMF -Public limited company with share capital of € 13,500,000 - RCS Paris B 349 501 676.
CARMIGNAC GESTION Luxembourg - City Link - 7, rue de la Chapelle - L-1325 Luxembourg - Tel : (+352) 46 70 60 1. Subsidiary of Carmignac Gestion. Investment fund management company approved by the CSSF. Public limited company with share capital of € 23,000,000 - RCS Luxembourg B 67 549.