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By John WilsonDirector of Corporate Engagement, Calvert Research and Management and Kimberly StokesCorporate Engagement Strategist, Calvert Research and Management

Washington - At Tesla's annual meeting on August 4, shareholders presented several environmental, social and governance (ESG) proposals for consideration. This marked an opportunity for those with concerns about the company's governance and the sustainability of its competitive advantages to make their voices heard.

Calvert has long engaged with Tesla on numerous issues, and a shareholder resolution we filed in 2021 on workforce diversity disclosure got majority support (despite opposition from management and large interested shareholders), the first environmental or social proposal to get that level of support. While the company issued the report with some of the data we requested, the underlying problems of discrimination and harassment do not seem to have been resolved. As a result, we continue to cast our proxy votes in a way we hope will push the company toward greater progress on managing key ESG risks.

Eight shareholder proposals were up for consideration, each of which Calvert supported. One that concerned proxy access received majority support. Several of the other resolutions focused on human capital management, which is not surprising, given some of the high-profile controversies affecting Tesla in recent years. The results seem to indicate the growing fatigue among independent shareholders over the company's lack of progress on diversity and human capital management. Among them are:

  • The proposal asking Tesla to report on its anti-harassment/discrimination policies received 47% of the vote, nearly a majority. Tesla has faced recent attention and criticism for allegations of harassment and discrimination in the workplace, and increased transparency would help shareholders assess how the company is managing associated risks.
  • We voted in favor of Tesla producing a report on the impact of using mandatory arbitration in employment contracts. Mandatory arbitration tends to reduce the accountability of management for workplace harassment, possibly helping to perpetuate discriminatory practices. More information on Tesla's practices would allow shareholders to better evaluate this risk for employees and the associated reputational risk.
  • Calvert also voted in favor of a resolution asking Tesla to produce a report on eradicating child labor in the battery supply chain. Tesla is growing rapidly and sourcing battery cells from new suppliers, increasing the risk of its supply chain being exposed to controversial metals often associated with child labor and labor abuses. As the world's top seller of electric vehicles, Tesla faces a proportionally larger risk on its battery manufacturing supply chain relative to other automakers-making detailed reporting on the battery supply chain even more important.

Also of note are the results on the reelections of Ira Ehrenpreis and Kathleen Wilson-Thompson for seats on Tesla's board as independent nonexecutive directors (INEDs). Calvert wrote letters addressed to both prior to the publication of Tesla's Impact Report in May 2022, urging them to have a discussion with Calvert on the importance of strengthening diversity, equity and inclusion policies and practices in light of the many governance failures and controversies at Telsa that have become public. The company and board never responded to our outreach. The unresponsiveness and unwillingness to communicate with Calvert was among the reasons we voted against their nominations. Both were ultimately elected but received less than 70% of the vote even with the support of insiders, meaning the support among independent shareholders was even lower. This is particularly notable, given that during the most recent proxy season, 85.2% of all directors received 90% or greater support, and only 5.7% received between 50%-80% support.

Calvert will continue to press Tesla to make improvements on these human capital and other material ESG issues. We will also continue to communicate with investors who filed shareholder proposals over the last few years on various human capital management and human rights issues and with other stakeholder groups in an effort to move the company forward.

Bottom line: Calvert will continue to leverage our engagement expertise to ensure that Tesla and other companies leading the energy transition are doing so in a way that is supportive of human rights, the dignity of workers, is mindful of community impacts and is aligned with the best human capital management practices.

Note: Alejandro Zamorano and William Hsu contributed to this report.