Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
BlackRock announced that it will provide institutional investors like pensions and endowments the chance to vote on proposals themselves starting in 2022. This shift allows these asset owners to claim voting power on about 40% of BlackRock’s $4.8 trillion in managed indexed equities – and exhibits how larger investors want more of a say on corporate board and director votes, ESG metrics, pay, etc. Among options beginning in 2022, clients may select several third-party proxy voting policies such as Institutional Shareholder Services, and certain clients may choose to directly vote on individual resolutions or companies using BlackRock’s voting infrastructure.
- Teneo Takeaway: While BlackRock has increased its votes against management in recent years, it has historically voted in favor of the company at a very high rate overall. Giving more voting authority to its pension fund clients (and the option to vote with advisory firms such as ISS), and eventually retail holders, is likely to change that in the coming years, perhaps materially.
In August, the SEC approved Nasdaq’s board diversity disclosure requirements – which asked public companies to have at least one self-identified female director and one director who self-identifies as an “underrepresented minority” or “LGBTQ+.” The rule change faced quick legal backlash from the Alliance for Fair Board Recruitment, and this week The National Center for Public Policy Research submitted a petition with the U.S. Court of Appeals for the Third Circuit to review the regulations. Others have argued the changes will not do enough for certain marginalized communities. The President and CEO of Disability:IN, Jill Houghton, argued that including disabled people within the Nasdaq’s board diversity disclosure requirements could “have the largest impact on people with disabilities’ ability to pursue economic opportunity than anything that has ever occurred over the history of time.”
- Teneo Takeaway: The lawsuits are unsurprising, mirroring those filed against U.S. states with board diversity laws. We continue to expect the SEC to propose its own board diversity disclosure rules in the coming months, once again resting their case on investor protection.
Google recently unveiled a new suite of sustainability features across its products and services focused on giving consumers more information if they want to learn more about and cut their greenhouse gas emissions. Chief Sustainability Officer Kate Brandt said that Google aims to enable “one billion sustainable actions.” These include emissions-curbing tools for its Nest Thermostat, labeling flights with low emissions and showing eco-friendly routes in Google Maps, which, according to CEO Sundar Pichai, can have the same impact as taking 200,000 cars off the road by next year.
- Teneo Takeaway: Companies continue to develop new ways for consumers to make more informed choices about the products they choose and the related impact on ESG issues.
Global private equity firms and pension funds including Carlyle Group, CPPIB, CVC, Blackstone, EQT AB and the California Public Employees' Retirement System (CalPERS) – with $4-plus trillion in combined assets – agreed to standardize reporting on their portfolio companies’ ESG performance. In doing so, they launched the first-ever LP and GP partnership on such an issue. Metrics will include data on emissions, renewable energy and board diversity. At a time when more stakeholders and regulators are concerned about finding sustainable, inclusive ways of doing business – and with no universally accepted ESG metrics – the group is doing its best to measure impact, with the metrics aggregated by consulting firm BCG into an anonymous benchmark.
- Teneo Takeaway: A strong move by some of the world’s largest private equity firms to help ensure that private companies (and not just public companies) do their part to advance important sustainability issues.
On October 1, Institutional Shareholder Services group (ISS) released their 2021 Global Policy Survey – Climate and 2021 Global Benchmark Policy Survey. The benchmark policy survey questions covered a variety of emerging and other topics with global application, including on the use of non-financial ESG performance metrics in executive compensation, racial equity audits, and the continued use of virtual-only shareholder meetings. The separate climate survey questions elicited feedback relevant to both ISS’ benchmark and specialty climate policy development in order to determine views on minimum criteria for boards in overseeing climate-related risks. Additionally, the survey covered market sentiment on shareholders having the right to regularly vote on a company’s climate transition plans. MSCI also released their 2021 Global institutional investor survey, which found that 73% of surveyed executives plan to increase ESG investment either significantly or moderately by the end of 2021.
- Teneo Takeaway: Both the ISS and MSCI survey results indicate a continuing growing interest from institutional investors on ESG issues with no signs of letting up heading into the 2022 proxy season.
Moody’s Corporation announced its commitment to achieve net-zero emissions throughout its operations and value chain by 2040. The commitment aligns with Moody’s published Decarbonisation Plan, as well as its ongoing commitment to the Ten Principles of the United Nations Global Compact.
- Teneo Takeaway: The announcement advances the company’s previously announced net-zero target by 10 years, a trend worth watching. As companies begin to track the progress of their sometimes admittedly aspirational 2050 net-zero goals, it will become more evident whether and when they can realistically reach those goals.
Senator Marco Rubio, R-Fla., introduced the “Mind Your Own Business Act of 2021” that would empower major shareholders to sue companies and executives if they believe the company’s business strategies are deviating from fiduciary obligations to maximize returns. The bill could target business initiatives that focus on social issues – such as abortion – and may increase an executive’s personal liability to shareholders for breaches of their fiduciary duties.
- Teneo Takeaway: The bill’s introduction is a not-so-gentle reminder that not everyone has embraced stakeholder capitalism. On its surface, it also sharply contrasts with the Business Roundtable’s revised 2019 statement of purpose.
They Said It: ESG Influencers Speak Out
In a USA Today opinion piece about fighting climate change, Michael Bloomberg and Prince William wrote, “The science tells us that this is the decade to act – and that waiting is not an option. … We must meet this moment with the optimistic spirit of President Kennedy’s Moon Shot.”
Looking Ahead: Upcoming ESG Events
- CSR Europe, The European SDG Summit 2021 (Virtual) – 11-14 October
- Fortune, Most Powerful Women Leadership Summit (Washington, D.C) 11-13 October
- United Nations, UN Biodiversity Conference (Kunming, China) – 11 October
- United Nations, UN COP26 (Glasgow, UK) – 1-12 November
- Global Reporting Initiative, GRI Summit (Virtual) – 18 November