Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The Securities and Exchange Commission announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17, 2022. SEC Chair Gary Gensler said this move will help the public provide feedback on the rulemaking, and the agency made this decision after hearing from commenters who noted they would benefit from additional time to review the proposals.
- Teneo Takeaway: The SEC has proposed two-dozen new rules in the last six months, prompting stakeholders to request additional time on a handful of proposed rules. A bipartisan group of legislators (29 congressional democrats and 19 republicans) advocated for an extended comment period on another proposed rule that would impact hedge funds and private equity funds.
Federal bank regulatory agencies jointly issued a proposal to strengthen and modernize the Community Reinvestment Act (CRA). Enacted in 1977, the CRA encourages banks to advance financial inclusion by meeting the credit needs of local communities. The proposal includes expanding access to banking services in these communities, adopting a metrics-based approach to CRA evaluations, and more.
- Teneo Takeaway: The proposed changes will revamp the law to take into account new realities like mobile and internet banking. The CRA currently regulates banks by physical branch locations, but this interagency proposal shows a coordinated effort to regulate neobanks and fintechs. Critics say the CRA limits financial institutions without delivering the equity it promises, while supporters say the law is imperative in ensuring all Americans can generate wealth. Comments on the proposal will be accepted until August 5, 2022.
This past week, BlackRock’s investment stewardship team published a document warning it would vote against many upcoming climate-related shareholder resolutions. The deck noted that compared with last year, there are significantly more resolutions that would unduly restrict management’s decisions or are irrelevant to pursuing long-term shareholder value. In the deck, BlackRock also highlighted the impacts of the shifting energy market, due to the war in Ukraine.
- Teneo Takeaway: BlackRock’s investment stewardship team are fiduciaries and must act in the best interests of their clients, many of which are pension and retirement funds. The market turmoil has caused many investors at every level, from retail to institutional, to reconsider their exposures to a variety of asset classes, including energy. As of this writing, the S&P500 is down nearly 19% YTD, while the S&P500 Energy Sector companies are up nearly 40% over the same period.
A new upstart ‘anti-ESG’ firm called Strive Asset Management raised $20 million to start a fund that urges companies not to wade into hot-button social or environmental issues. Vivek Ramaswamy, the author of ‘Woke, Inc’ – a critique of ‘Stakeholder Capitalism’ suggesting politics have no place in corporate America – has received backing from Peter Thiel and Bill Ackman. In an interview, Ramaswamy said that the fund is a message to corporate America to “focus on excellence over politics. If you’re an oil company, be an excellent oil company; if you’re a coal company, be an excellent coal company; and if you’re a solar company, be an excellent solar company, but we’re not, for example, going to tell oil companies not to be oil companies.” He argues that the “ideological cartel” advocating to improve corporate diversity and climate standards breaches fiduciary obligations.
- Teneo Takeaway: Ramaswamy believes that Strive can tap into a public desire for an alternative to BlackRock, Vanguard, and State Street and the stakeholder capitalism model for which the world’s three largest investment managers advocate. His focus on “excellence capitalism” puts customers first and foremost among a company’s stakeholders.
They Said It: ESG Influencers Speak Out
In a Wall Street Journal Opinion piece attacking the S&P’s use of ESG metrics in state credit ratings, Utah State Treasurer Marlo Oaks wrote: “ESG metrics’ false certainty about future events, and consequent inability to keep up with unanticipated current events, causes capital to be misallocated. They create bubbles in favored industries while starving others that could be profitable … Extending this [ESG regime] into the municipal sphere is an invitation to litigation and other coercive tactics that will sabotage states’ self-determination and independence.
Looking Ahead: Upcoming ESG Events
